US SEC Likely May Allow Bitcoin ETF Trading Next Week Onwards

Overview

  • According to a report, Bitcoin ETFs could start trading as close as the October 18th.

The $6.7 trillion exchange-traded fund industry is so optimistic that the first U.S. Bitcoin fund could start trading next week after nearly a decade.

According to a filing, asset manager ProShares expects to launch a Bitcoin futures exchange-traded fund as soon as Monday, ending an eight-year wait for a security tracking the cryptocurrency on the US stock market.

According to people familiar with the situation, the SEC is unlikely to prevent the products from trading next week, according to Bloomberg News. The fund’s launch will be the climax of a nearly decade-long campaign by the $6.7 trillion ETF sector, barring a last-minute reversal. In 2013, the twins Cameron and Tyler Winklevoss, most known for their role in the founding of Facebook Inc., filed the first application for a Bitcoin ETF.

ProShares submitted proposals for its Bitcoin Strategy ETF on Friday, laying the framework for its launch. Other funds are expected to follow in the coming weeks as the Securities and Exchange Commission reviews additional applications from asset managers Valkyrie Investments, Invesco, and VanEck made in August.

What is an ETF?

An exchange-traded fund (ETF) is a type of investment vehicle that monitors the performance of a specific asset or group of assets. ETFs allow investors to diversify their portfolios without having to hold the assets.

Difference between bitcoin and ETF bitcoin?

Why bother with an intermediary if a bitcoin ETF just replicates the cryptocurrency’s price? Why not invest directly in bitcoin? This is due to a number of factors. For starters, as previously said, investors do not need to worry about the security processes that come with holding bitcoin and other cryptocurrencies. Furthermore, investors do not need to deal with cryptocurrency exchanges because the ETF may be purchased and sold through standard exchanges and marketplaces.

Focusing on a bitcoin ETF rather than bitcoin itself has another significant advantage. Because the ETF is an investment vehicle, investors who predict the price of bitcoin will fall in the future can short sell shares of the ETF. This is impossible to achieve in the typical cryptocurrency market.

Source: CNBC

How do crypto ETFs work? 

The key advantage of crypto ETFs is that they function exactly like standard ETFs. They are available in two varieties:

  • Physical-backed: An asset management firm must purchase actual coins from the market to develop this form of crypto ETF, just as it would for a standard ETF. It can then create a fund to represent the value of the crypto assets it owns and list it on a stock exchange for trading. The value of your investment rises in tandem with the value of the fund’s digital currency.
  • Futures-backed: The fund’s shares are based on crypto futures contracts rather than actual coins in this form of ETF. A futures contract is nothing more than an agreement to buy or sell an item at a predetermined price at a future date. Because there are no tangible assets to safeguard, these are less hazardous than physical-backed ETFs. The SEC is apparently prepared to approve this form of bitcoin ETF.

Pros of crypto ETFs 

  • Safer: All ETFs are extensively regulated because they are traded on established exchanges. As a result, authorities can keep track of and analyse their performance while also guarding against price manipulation in the ETF markets. However, unregulated crypto exchanges can still affect the price of the underlying asset. Hacking and theft are also possible on cryptocurrency exchanges and wallets. Crypto ETFs protect against these risks as you don’t own any actual crypto. A futures-backed crypto ETF, on the other hand, does not own any crypto.
  • Cheaper: Purchasing a significant number of cryptocurrencies is a time-consuming and complicated process that entails signing up for many crypto exchanges and maintaining multiple digital wallets. Crypto ETFs provide you with indirect exposure to a variety of crypto assets through a single investment. In addition, ETF fees are typically lower than those of traditional managed funds.
  • Convenient: The major advantage ETFs offer over direct investing in crypto is that investors don’t have to deal with the underlying asset. While cryptocurrency exchanges have made it easier to buy and trade cryptocurrency in recent years, issues such as setting up digital wallets and knowing how private and public keys work still stand in the way of widespread crypto adoption. Crypto ETFs allow investors to participate in the new asset class while maintaining their current brokerage accounts.

Cons of crypto ETFs 

  • Limited choice: There are now only a few such funds available to invest in. However, if the SEC decides to allow crypto ETFs, things might soon change. At the asset level, too, a lack of choice is a worry. To reduce risk, traditional ETFs hold a diverse range of securities. However, the majority of crypto ETFs only track a few digital currencies.
  • Crypto-related risks: While crypto ETFs are safer than investing directly in cryptocurrencies in several ways, they still involve many of the risks associated with the underlying assets they represent. Cryptocurrencies, like crypto ETFs, are highly volatile. Other crypto-related risks, including hacking, must be managed by physical-backed funds, which buy and store genuine cryptocurrency..
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