Note Down The Three Points Of Difference Between Bitcoin ETFs And Commodity ETFs

The ETFs Explained

To say that the introduction of Bitcoin ETFs is nearly certain or will happen sometime next year isn’t exaggerating where the debut of Bitcoin ETFs is expected to transform cryptocurrency markets, with institutional investors such as pension funds and hedge funds leading a flood of capital into the industry and stabilize volatile crypto prices being touted as an investment vehicle that will make Bitcoin accessible to average investors. 

Here Bitcoin is often referred to as digital gold because it surely shares similar characteristics with the precious metal while both are mined and are scarce as the investors, for the most part, are being expected exponential increases in those Bitcoin markets as were observed for gold and other commodities when funds to track their prices were introduced. 

It is, therefore, those rosy prognostications that assume similarities between the structure and compositions for those commodity ETFs and Bitcoin ETFs. It is here that Bitcoin’s digital provenance makes it a unique case where it is already defined mining schedule as there is the fact that its custody and storage ecosystem is yet to mature. Thereby transaction fees and miners are also expected to play an important role in its evolution as a store of value. It is, of course, to be noted that all of these factors are expected to play an important role in ETFs designed around cryptocurrencies. Then here are the three ways in which crypto ETFs could be different for conventional ETFs. 

How Could They Be More Expensive Per Share

It is therefore observed that the Van Eck ETF application filed earlier proposes holding 25 bitcoins per share while taking into account current and possible future prices for Bitcoin translating into fairly expensive prices for retail investors. Thereby as an example, the price per Bitcoin is $ 6,951 as the per-share price of the ETF translates into $ 205,712, based on this price. According to the founder of Crypto Fund Research, Joshua Gnaizda, the per-share price of Bitcoin ETF could certainly be comparable to the world’s highest share price, Berkshire Hathaway Class A shares. The net asset value to be sure of an asset is a function of other factors such as the number of shares outstanding as well. Here the point to be taken is that institutional investors are sure to step up to the plate in a major way to make ETFs accessible to retail investors. While this is not impossible, whereas the crypto ecosystem will certainly require significant institutional money. 

The Unique Risks Could Lead To Higher Prices

It was noted by Gnaizda that cryptocurrencies present unique risks that are not present in commodity and gold ecosystems where Keys not in cold storage can be hacked, private keys can be lost, and stolen money be moved nearly anonymously. Therefore the insurance for cryptocurrency holding presents another significant risk. Thereafter the crypto-insurance has become a lucrative industry for existing insurers primarily because they can charge high premiums. With a dearth of clients for custody solutions, it can help spread risk over a large number of clients that have not helped matters. Estimating that insurance prices could be as much as 5% of overall holdings, Gnaizda remained to say that it is expensive unless several billion dollars in assets is reached and the larger the fund gets the higher the likelihood of counterparty risk in the insurance policy according to him.  

Why The Expense ratios could be higher

The next reason is that the expense ratio is the fee charged by fund managers for administration and storage of assets where it might be significantly higher for cryptocurrency holdings given the issues with custody, insurance and compliance surprising if it ends up being 1% or higher according to Gnaizda as in the context expense ratios for most funds is between 0.2% to 0.4% whereas gold ETFs averaging between 0.25 % to 0.40% as expense ratios. 

The Concluding Words On The Topic

Here the stage is set for the Bitcoin ETFs to take over from the commodity ETFs. They pose competition for the ETFs depending on the stock market. Thereby the gold ETFs are being dragged down to their most basic value. It is by the expense ratio seen that the gold ETFs have a higher expense ratio. This implies it is one of the most significant factors to determine if the ETFs are gaining on in the market space. Thereafter the crypto world is full of promise and the future is still bright.