Crypto ETF, or Bitcoin ETF, is a tradable asset worth bitcoins or cryptocurrencies and is traded in traditional financial markets and related exchanges. These assets are not in the digital currency market but are traded as financial assets in other markets. This method allows traders to invest in a tangible asset instead of digital assets and exchange it at the price of cryptocurrencies.
What is Crypto ETF?
A Crypto ETF asset is an investment based on the price of a cryptocurrency. Today, ETFs exist in the form of various assets, including multiple products or Fiat currencies.
If you own a Crypto ETF, the price of the related cryptocurrency, such as Bitcoin, is placed on that asset, and when the Bitcoin price changes, the fee of that asset changes at the same time. But instead of trading digital currencies this way, you are trading an asset with the same cryptocurrency price in markets like the NYSE or TSX.
Advantages and disadvantages of crypto ETF
Each Crypto ETF has its advantages and disadvantages, which we will thoroughly examine based on its usage. However, it can be said that crypto ETFs are primarily used because of their benefits.
Convenience
If you are a person who does not like to invest in digital assets and wants to buy and sell a tangible product but needs to do so based on changes in the cryptocurrency market price, ETFs are the best option for this. Maybe you do not want to risk bitcoin, or you do not wish to have a digital wallet at all, and you are afraid of it when you lose the wallet password. So the ETF is very useful here.
Classification
Each ETF can carry more than one asset. For example, a Bitcoin ETF could include Bitcoin, Apple stock, Microsoft stock, or several other stocks to allow traders to simultaneously use and determine profitability on multiple assets. Similarly to trading in regulated markets, an ETF can enable traders to increase their portfolio diversity.
Tax efficiency
Bitcoin and other cryptocurrencies are generally traded in a decentralized manner and are illegal and taxable due to a fixed regulatory body. But Crypto ETFs are traded as a traditional asset in the market and are regulated by SEC rules.
Management fees- disadvantage
One of the main problems with ETFs is the cost you incur to manage the assets in the portfolio. Therefore, the more diverse your basket is, the higher its maintenance costs will be.
ETF inaccuracy- disadvantage
Crypto ETFs can include several other traditional assets in addition to the cryptocurrency in question. Therefore, changes in the portfolio price are very complicated, and sometimes it is not possible to calculate and determine the exact price after many changes in cryptocurrency. Although the ETF is set based on the associated cryptocurrency price, it will not have accurate tracking in some cases.
Limits to cryptocurrency trading- disadvantage
Cryptocurrencies can be converted to each other and easily exchanged. But portfolios do not simply become cryptocurrencies because they are no longer considered a traditional asset.
Lack of Bitcoin ownership- disadvantage
Bitcoin and other cryptocurrencies are managed decentralized according to blockchain rules. The security of the blockchain is very high, and no one can easily infiltrate other people’s assets. But by converting an asset to an ETF, you are effectively subject to government regulations and no longer have the freedom to trade and sell bitcoins.
Is there any Bitcoin ETF on the market?
There is currently no overall portfolio asset for Bitcoin. But some cryptocurrencies can be traded as ETFs. To build a Bitcoin ETF, SEC approval is required. So far, its requests have been blocked in various ways, and there is no definitive answer in this regard.
Decentralized applications in the digital currency market now provide users with ways to trade ETFs. For example, VanEck Vectors Digital Transformation ETF is one of these tools that can buy assets for you based on cryptocurrency price and put them in the portfolio of companies that work on digital currencies.
Although there is currently no Bitcoin ETF, some funds can indirectly offer assets based on the value of Bitcoin. Shares of these funds can be traded, which vary based on the price of digital currencies. On the other hand, by investing in companies that operate in blockchain, you can also buy and sell traditional assets based on bitcoin price tracking.
Conclusion
Crypto ETFs or cryptocurrency portfolios offer assets whose prices change based on cryptocurrency rate changes. In addition to these assets, stocks or other assets can be added to the portfolio, although adding new items will increase the cost of managing the portfolio. What do you think about these types of investments?