How Do Blockchain ETFs And Bitcoin ETFs Differ?

What Is The Hype Around Blockchain And Bitcoin ETFs?

The Bitcoin as it is gaining traction within the investment community, the Bitcoin ETFs are still a pipe dream where they have already made their debut within the mainstream markets. The terms Bitcoin and blockchain are used interchangeably in the mainstream parlance, resulting in investors getting confused between Blockchain and Bitcoin ETFs. 

When it comes to understanding the difference, the difference between the instruments tracked must be understood. While Bitcoin is a cryptocurrency, Blockchain is the underlying technology to the crypto world. As this distinction is important it is considered within the context of investment instruments. 

In most jurisdictions, the cryptocurrency regulatory status is still unclear even though Bitcoin futures are offered on two leading exchanges. Or its role in facilitating criminal activities such as money laundering, it is embroiled with multiple regulatory battles while under scrutiny. 

Adopted by a wide swath of industry, the blockchain, on the other hand, has been blessed by the likes of JPMorgan CEO Jamie Dimon meaning it is neither banded nor under scrutiny by the regulatory agencies with already four blockchain ETFs trading in regulated markets. Launched in 2018, these have a combined $278 million worth of assets under management. Ranging from 0.70% to 0.65% are the expense ratios.

Investors have put $180 million into blockchain ETFs according to a Wall Street Journal report within the first two weeks of their launch. As compared to other similar instruments, the trading volumes for these ETFs were higher. 

How Are Blockchain ETFs Different From Bitcoin ETFs?

The main difference is that blockchain ETFs track primarily the stock market prices of those companies that have invested in the blockchain technology in their fund, as it is a technology not tied to a specific company or product. 

According to Christian Magoon, the CEO of Amplify ETFs, the largest among the ETFs focused on blockchain, “ blockchain doesn’t need Bitcoin whereas Bitcoin needs blockchain.”

Being not restricted to a particular sector, the blockchain universe of investments is large. As an example of this, IBM formed a partnership with the shipping line Maersk implementing blockchain in the freight industry. Through its Medici Ventures and tzero digital coin exchange, the eCommerce company Overstock has investments in blockchain. As these companies are naturally the favorites with blockchain ETFs, the example of Amplify ETFs’ Amplify Transformational Data Sharing ETF and Reality Shares Nasdaq NexGen Economy are relevant being included in their ETFs by both companies.

Tracking the price of Bitcoin through futures contracts being traded on Cboe and CME is most of the Bitcoin ETF applications before the SEC has proposed. The ETFs track the price of Bitcoin in this model through ownership of futures contracts.  

The SEC has however sited that liquidity and valuation problems in ETF proposals ultimately led to its rejection. Currently having low trading volumes and liquidity, are the Bitcoin futures. The futures, as a result, follow spot exchange prices that are volatile as opposed to leading them.

Compared to Bitcoin ETFs, in the current form, blockchain ETFs are relatively less volatile because they are not exposed to the volatility of the wild price swings of Bitcoin. 

Summarizing, the blockchain is a nascent technology that does not currently constitute a large market. With the stock prices of companies being tracked by the ETFs, it is a fact that it is more susceptible to the factors that do not concern or affect blockchain technology. Bitcoin ETF s when they were launched, are directly affected by policies regarding regulatory agencies for Bitcoin and cryptocurrencies. 

When Will Bitcoin ETFs Be Available? 

With reports hinting that the introduction of Bitcoin ETFs in the time frames for introduction ranging from the end of the quarter to the summer, the road leading to Bitcoin ETFs is a rocky one. The SEC mentioned earlier has rejected several proposals already relating to Bitcoin ETFs.

Adena Friedman, CEO of Nasdaq, said at the World Government Summit recently that it might be too soon for the Bitcoin ETFs in the United States where the underlying markets determine Bitcoin prices that are unregulated and not necessarily fair to all participants. She said this means that there may be price distortion. 

Concluding Words

Resulting in an unreliable basket of prices for the ETF is this price distortion while Friedman did not provide a timeline for the launch of Bitcoin ETFs in the US market and opined that it was prudent for regulatory markets taking a watch mode and learning as much as we can about it.