ZoneBitcoin EditorialIn traditional finance, ETFs ( Exchange Traded Funds) or exchange-traded funds, have become a popular investment option among investors. Although ETFs have been around since 1993, it is mainly in recent years that they have gained popularity among investors. They represent a simple and effective way to diversify your portfolio without having to buy individual stocks.
Bitcoin ETFs have been around for some time now. What does this mean in concrete terms?
In this article, we will explore the history of Bitcoin ETFs, their impact on the cryptocurrency market, their pros and cons, the regulatory challenges they face.
What is a Bitcoin ETF?
An ETF is an investment fund that holds a basket of underlying assets, such as stocks, bonds or commodities. So when you buy a ETF, you immediately become a shareholder of the fund and you obtain a diversified basket of stocks or bonds.
So, a Bitcoin ETF is an exchange-traded fund that tracks the performance of Bitcoin. Unlike purchasing Bitcoins directly, investors can purchase shares of a Bitcoin ETF on a broker, allowing them to invest in the value of Bitcoin without having to manage the storage or security of the Bitcoins themselves. .
Bitcoin ETFs are designed to reflect the performance of Bitcoin using derivative financial instruments, such as Bitcoin futures, for example.
(Difficult) History of Bitcoin ETFs
The history of Bitcoin ETFs goes back several years.
The first Bitcoin ETF was proposed in 2013 in the United States, but it was rejected by the Securities and Exchange Commission (SEC), the financial markets regulator in the United States. Since then, many attempts have been made to launch a Bitcoin ETF, but they have all been rejected by the SEC due to concerns over market manipulation and Bitcoin volatility.
Here is a non-exhaustive list of some rejections from the SEC:
- In 2013: The Winklevoss brothers – part of most notorious crypto-billionaires – submit the first bitcoin ETF proposal which is rejected
- In 2018: The Winklevoss brothers made a second proposal which was also rejected.
- In 2019: Bitwise files for the creation of an ETF which is rejected.
- In 2020: Wilshire Phoenix sees its application to create a bitcoin ETF rejected.
- In 2020: The first ever accepted Bitcoin ETF is listed on the Bermuda Stock Exchange.
- In 2021: Canada's first Bitcoin ETF is established: the Purpose Bitcoin ETF (BTCC). Two more will be approved in the same year: the Evolve Bitcoin ETF (EBIT) and the CI Galaxy Bitcoin ETF (BTCX).
At the moment, there is (yet) no European or American ETF or tracker issuer offering Bitcoin-indexed exchange-traded funds.
Only the most crypto-friendly such as Canada and Brazil have authorized the launch of Bitcoin ETFs. However, we can see some change now.
Indeed, recently, it is the company BlackRock – the largest asset management company in the world- who has just submitted a file with the SEC for the creation of a Bitcoin ETF.
This shows the growing interest for investment companies as well as individuals to use ETFs to invest in Bitcoin.
The Impact of Bitcoin ETFs on the Cryptocurrency Market
The introduction of Bitcoin ETFs to the cryptocurrency market has had a significant impact. First, it opened the door to new investors who want to invest in Bitcoin but are not comfortable with the idea of buying and storing Bitcoin themselves. Indeed, even if buying bitcoin turns out to be simple, storing them safely involves other knowledge and skills. Not all investors want to worry about storing their bitcoins. In this case, investing in ETFs seems to be an ideal option for this type of profile.
Additionally, Bitcoin ETFs offer a more accessible and regulated alternative. The introduction of Bitcoin ETFs led to an increase in liquidity in the cryptocurrency market, making it easier and faster to buy and sell Bitcoin, especially among institutions and traders.
However, some critics argue that Bitcoin ETFs could also lead to increased volatility in the cryptocurrency market because they allow investors to speculate on the price of Bitcoin without actually owning the cryptocurrency.
???? Read the article: What are the repercussions of BlackRock on Bitcoin?
What are the most popular Bitcoin ETFs?
Here are 5 Bitcoin ETFs that are accessible as well as their main characteristics. Not all Bitcoin ETFs are available depending on your geographic residence. You should check availability with the broker you are using.
👉 The ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF (BITO) was the first ETF approved in the US markets. In fact, it has become the most traded Bitcoin ETF in history and also the most popular.
👉VanEck Vectors Bitcoin ETN
This ETF can be found at VanEck and allows you to obtain rapid exposure to bitcoin. It has a 1% per fee and this ETF is 100% backed by bitcoin. This ETN is available on Euronext Amsterdam and Euronext Paris. You should know that it is an abuse of language to speak of an ETF here, because it is in reality an ETN (see paragraph below which explains the difference).
👉 Purpose Bitcoin ETF (BTCC.B)
The Purpose Bitcoin ETF trades on the Toronto Stock Exchange (TSX) under the symbols BTCC.B and BTCC.U. Management fees of around 1% are affordable. The Purpose Bitcoin ETF invests in physically regulated bitcoin, not derivatives.
👉Bitcoin EBIT (EBIT)
The Bitcoin EBIT ETF allows investment in EBIT bitcoin holdings which are valued based on the CME CF Bitcoin Reference Rate, which is the benchmark index price updated daily. The price is stated in US dollars and not in euros.
👉 QR Capital Bitcoin ETF (QBTC11)
QR Capital's Bitcoin ETF has been approved by Brazil's Comissão de Valores Mobiliários. The QBTC11 tracks the CME CF Bitcoin Reference Rate Index.
👉CI Galaxy Bitcoin ETF
The CI Galaxy Bitcoin ETF represents an investment fund based in Canada. The fund's bitcoin holdings are valued on the Bloomberg Galaxy Bitcoin Index (BTC Index).
What are the advantages and disadvantages of Bitcoin ETFs?
Bitcoin ETFs have several advantages for investors. First of all, they offer a simple and regulated way to invest in Bitcoin. Additionally, Bitcoin ETFs allow investors to diversify their portfolio by investing in cryptocurrency without having to manage the storage or security of the Bitcoins themselves.
However, there are also potential downsides to consider. For example, ETFs are subject to management fees, which can reduce investment returns. Additionally, these financial instruments are subject to the volatility of the cryptocurrency market, meaning that investors may suffer significant losses if the price of Bitcoin declines.
The advantages of Bitcoin ETFs:
✅ Ease and accessibility
To invest in a Bitcoin ETF, you simply need to register on a platform that offers ETFs and buy them directly. This then allows those who do not want to worry about questions of wallet security to indirectly own Bitcoin.
✅ Diversification
By investing in an ETF, you can hold multiple assets with Bitcoin. An ETF can be made up of several assets, which allows you to simply diversify your portfolios. This makes it possible to smooth out possible risks in the event that an asset experiences a significant decline.
The disadvantages of Bitcoin ETFs:
⛔️ Management fees
You should know that brokers charge annual management fees. In general, fees vary between 0,5 and 1% but some issuers display fees of up to 2% per tranche. Therefore, this can result in significant costs in the long term.
⛔️ Impossible to trade cryptocurrencies directly
On exchange platforms like Binance, it is possible to exchange and trade cryptocurrencies with each other. However, with an ETF, it is not possible to do this, because it is not a cryptocurrency that you own but an asset that represents its price.
This is definitely the biggest drawback of Bitcoin ETFs. By investing in ETFs, you do not own your bitcoins in a wallet belonging to you. You own an asset that represents the price of Bitcoin. It's very different in principle.
⛔️ Taxation can be disadvantageous
Dividend distributions from ETFs are taxable and gains from ETF sales may be subject to tax. tax on capital gains. However, cryptocurrencies are subject to tax once the sale is made in FIAT but not when exchanged for other cryptocurrencies.
⛔️ No precision of the price of the singular asset
Although ETFs track the price of an underlying asset, there is a chance that increases or decreases in an asset may not be accurately reflected because there are other assets in the ETF. AND F. This may prevent you from carrying out more substantial purchase-resale transactions, for example.
What is the difference between an ETF and an ETN?
An ETF (Exchange-Traded Fund) and an ETN (Exchange-Traded Note) are two types of financial products that are traded on an exchange. Although they have similarities, there are important differences between them.
An ETN is a credit note issued by a financial institution, usually a bank and it does not have a basket of underlying assets. The ETN simply promises to pay the investor a return based on the performance of a specific index or strategy.
Since ETNs are bonds issued by financial institutions, they are subject to the credit risk of the issuer. If the financial institution defaults or encounters financial difficulties, the investor may lose all or part of his investment. ETFs, on the other hand, are separate entities and are structured to minimize counterparty risk.
ETFs are designed to track the performance of a specific index. ETF managers buy and sell underlying assets to reflect changes in the index they seek to track. ETNs, on the other hand, are based on indices or strategies, but they don't actually purchase the underlying assets. Instead, the ETN issuer promises to pay a return linked to the performance of the index.
- Dividends and interest : ETFs can distribute dividends to unit holders, based on the income generated by the underlying assets. ETNs generally do not pay dividends. Instead, they may offer a return based on interest or other factors related to the index or strategy.
- Taxation: Taxation of ETFs and ETNs may vary depending on jurisdiction and local regulations. Generally, dividend distributions from ETFs may be taxable, while capital gains realized on the sale of ETFs may be subject to tax. tax on capital gains. ETNs may be subject to different tax rules because they are considered debt securities.
It is important to note that the specific characteristics of ETFs and ETNs may vary from one product to another.
Revolution: Revolut is a neobank that also offers investment services. The company recently added ETFs to their offering, providing a convenient option for French investors.
Conclusion on Bitcoin ETFs
The rise of Bitcoin ETFs has opened up new investment opportunities in the cryptocurrency market. These financial instruments provide investors with indirect exposure to Bitcoin, while providing increased regulation and security. However, Bitcoin ETFs are not without drawbacks and face regulatory challenges.
It is therefore essential to fully understand the advantages and disadvantages of Bitcoin ETFs before deciding to invest. With increasing adoption of cryptocurrencies, it is likely that Bitcoin ETFs will play an increasingly relevant role in the global financial landscape.
FAQs
Can you buy Bitcoin ETFs in France?
Currently, it is not possible to purchase Bitcoin ETFs if you reside in France or the European Union. There are, however, alternatives, such as investing in crypto ETFs or other stocks linked to the crypto market.
Are Bitcoin ETFs a good investment?
All investments involve risks. It is important to be aware of the risks associated with each investment. ETFs represent an accessible investment for certain investor profiles. For others, it is better to choose other options.
What is the best Bitcoin ETF?
It is difficult to know which Bitcoin is the best. There aren't many Bitcoin ETFs out there at the moment. Each investor should choose the ETF that best suits them. However, the ProShares Bitcoin Strategy ETF (BITO) is a popular ETF among investors.
How to choose your Bitcoin ETF?
You must observe the issuer as well as all the criteria that make up the ETF such as management fees, total assets under management (AUM) as well as past performance. However, it should be kept in mind that past performance does not guarantee similar future results.
Note: This is not investment advice. Always do your own research. All investments involve risks.
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