Bitcoin has come a long way in a decade, going from being a mere digital currency to being backed by Bitcoin exchange-traded funds (ETFs) and a mainstay in many investments in the entire crypto space.
Now you may be wondering why this coin has jumped so much over the past 12 years, a cryptocurrency cannot go from a price of $1 to more than $42,000 by chance.
So, today we will talk about the most important factors that contributed to the development of the bitcoin currency, which are the bitcoin exchange-traded funds, or in English (Exchanges Trades Funds), or the more commonly known term (ETF). Please follow up with us.
What are exchange-traded funds?
Before getting to know Bitcoin ETFs, it must first be explained about cryptocurrencies in general.
Exchange-traded funds, or as they are sometimes called, exchange-traded funds are special funds that track the prices of digital currencies based on the buying and selling operations carried out by investors. Currency prices are monitored by these index funds.
Currency price monitoring was first initiated by the ETF (Proshares Bitcoin Strategy) in October 2021, where trading operations, price volatility and measuring the evolution of prices began.
These funds are characterized by a set of characteristics and advantages, including:
It allows trading cryptocurrencies without spending any additional fees such as ownership fees, digital wallets, etc.
ETFs include cryptocurrencies with a rapid rise in price ensuring a profitable investment for investors.
What are the types of crypto-traded funds?
There are two specific types of ETFs:
Funds related to digital currencies: This type is based on digital currencies mainly, where the investment companies that manage exchange-traded funds buy digital currencies.
The ownership of cryptocurrencies is also represented as shares. This type entitles you to own cryptocurrencies indirectly, thus reducing the level of risk and expenses from owning them directly.
Funds related to cryptocurrency derivatives: These funds specialize in everything related to digital currencies such as futures contracts and various cryptocurrency trading products.
This was shown in a sobering fashion when several SEC exchange-traded funds proposed to track Bitcoin futures contracts on the Chicago Mercantile Exchange (CME).
What are Bitcoin Traded Funds?
Now that we know about cryptocurrency ETFs in general, it’s time to get to the bottom of Bitcoin ETFs and talk all about it.
Bitcoin ETFs are funds in which Bitcoin or related assets are traded on an exchange such as investment shares, etc. Also, trading on this exchange is traditional rather than cryptocurrency exchange.
How do Bitcoin ETFs work?
As for the working mechanism of the ETF, it is not very complicated, as the shares are tracked and purchased by the fund. And after the shares are sold to the participating companies, which in turn offer these shares in part on the stock exchanges.
A BTC ETF buys and holds bitcoin and then trades it in the form of shares on exchanges. Notably, the Securities and Exchange Commission has banned these funds from trading in bitcoin itself. In return, however, it allowed the trading of Bitcoin futures contracts, which are traded on the Chicago Stock Exchange (CME).
What are the goals and uses of Bitcoin ETFs?
There are many goals that Bitcoin ETFs seek to achieve, and they are as follows:
Protection
Bitcoin ETFs provide a high level of protection, as it is known that most digital wallets and accounts are vulnerable to hacking, which will lead to the theft of your investment.
Therefore, trading in Bitcoin directly may be considered somewhat risky, in contrast, trading in Bitcoin futures and stocks (Bitcoin ETFs) is considered less risky than the first method.
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Get rid of high fees
BTC selling and trading come with high fees charged by platforms specialized in buying, selling, and trading this currency. That is why trading in Bitcoin stock and futures contracts comes with much lower fees than those charged on Bitcoin platforms.
ETFs Easier
The interest in Bitcoin has increased a lot, this has increased the complexity of transactions and the details associated with buying, selling, and trading Bitcoin and adding a lot of things that may be difficult for a beginner.
That is why the Bitcoin ETFs trading method is an easier way as you will be able to trade stocks and futures contracts on a traditional exchange without complications.
[…] What are Bitcoin Exchange Traded Funds? […]