While Bitcoin ETFs have long been a success in Europe, it’s only in the past month that these crypto exchange-traded funds have made their mark in the US. Already they are looking like they could transform the way in which people invest in the remarkable success of Bitcoin. But are Bitcoin ETFs a passing fad or are they a serious investment opportunity?
Bitcoin ETFs are exchange traded funds that track the spot price and futures of Bitcoin. They have already proven to be popular in countries like Canada, and they can track the spot price and futures of other cryptocurrencies such as Ethereum.
The ProShares Bitcoin Strategy ETF was the first to hit US markets in October, and it has since been joined by other Bitcoin ETFs such as the Valkyrie Investments’ Bitcoin Fund. As such, US markets are expecting a flood of similar crypto exchange traded funds in the coming months. All will be hoping to follow the pattern set by the initial Bitcoin ETF that quickly tallied up over $1 billion in assets making it the best-ever ETF to be launched on the market.
Why investors are so keen for Bitcoin ETFs
These US Bitcoin ETFs have an important difference to how they function to similar exchange-traded funds abroad. This is because they are linked to Bitcoin futures rather than the price of the crypto itself. This effectively locks in the price for many months ahead and as such might end up costing something completely different compared to the Bitcoin price at a cryptocurrency exchange. As such there is always the danger that investors could purchase a Bitcoin ETF that drastically underperforms compared to the crypto price.
Plus there have been numerous instances in the past of a cryptocurrency ‘forking’ to become two separate crypto entities – usually as a result of a disagreement over how the cryptocurrency functions. As such, this poses a difficult question of how such a fork would be factored into any crypto ETF.
In the coming months, there will be efforts made by US regulators to try and gain a hold on what’s expected to be an increasingly popular investment option. There remain hopes that regulators will approve some kind of ETF that is backed by Bitcoin and this could encourage investors to gain exposure to Bitcoin without having to actually buy the asset.
Investing in a Bitcoin ETF may not be as cost-effective as buying Bitcoin outright, but it could be seen as being a more secure and accessible option to those who aren’t familiar with using crypto exchanges. The Bitcoin ETF will commonly involve a modest fee of 0.95% per year which is relatively high compared to other ETFs.
While such costs and technicalities might put some off investing in Bitcoin ETFs, there is little doubt that the asset represents an increasingly attractive investment option for those looking for a simple way to add cryptos to their portfolio. All of which shows how Bitcoin ETFs are yet another important milestone for cryptocurrencies.