Last Sunday, October 18, the US Securities and Exchange Commission (SEC) confirmed that it would not prevent the opening of the first Bitcoin-based ETF.
This is a very important announcement for crypto investors and is probably a watershed moment in terms of the global and mainstream acceptance of crypto assets as an asset class.
Understand what ETFs really are, why this is big news for crypto investors, and how this news can affect the price of Bitcoin.
Is WTH an ETF?
Exchange Traded Funds (ETFs) are a type of investment fund that allows you to track the price of another asset or basket of assets and trade on an exchange.
If it still sounds like a financial geek to you, that’s why. Now let’s put it all in context, using an example.
The SPDR S & P 500 ETF is the largest ETF in the world. It keeps track of an index called Standard & Poor’s 500. This includes 500 major listed companies in the United States.
The S & P 500 Index is considered one of the best indicators of the performance of large US market capitalization companies.
Now, if you decide to use “large-cap US companies” as the basis for your investment strategy, it will be a full-time job to catch up with the factors that drive the stock prices of 500 companies.
That’s where ETFs come in.
Instead, you can simply invest in an SPDR S & P500 ETF and get exposure to the entire market segment with a single simple investment.
For futures ETFs, the plot will be thicker. This is exactly the kind of ETF that Proshares was able to pass through the SEC as of last weekend.
In a nutshell, futures ETFs allow investors to “bet” on price fluctuations on another asset without being exposed to the risks associated with owning the underlying asset.
What does this mean for Bitcoin?
Bitcoin ETFs have many fringe benefits, but all the other benefits are inferior when compared to one important fact.
Bitcoin ETFs provide large institutions and high net worth individuals with the opportunity to gain exposure to Bitcoin in a highly regulated environment on their own terms.
In fact, Bitcoin already has a great deal of institutional interest.
Studies show that even relatively small investment weights of 1% to 5% of an investment portfolio can significantly improve the overall performance of that portfolio.
This may be primarily due to the fact that Bitcoin has little correlation with other asset classes, so its returns can compensate for the poor performance of more traditional assets.
The Grayscale Bitcoin Trust is probably the primary tool for institutional investors who want to add Bitcoin to their vast portfolio and currently holds over 654,000 Bitcoins.
This is 3.47% of the total circulating supply.
Such trusts are the most popular financial products used by institutions seeking exposure to Bitcoin, but they present many challenges.
For example, a grayscale investor can only sell shares in a trust after holding it for six months.
By completely avoiding concerns such as underlying asset storage and security, futures ETFs provide whale-sized investors with a simpler, less risky path to major Bitcoin investments.
What does a Bitcoin ETF mean to me?
If you’re not the institution or anyone who owns a collection of mega yachts and exotic big cats, do you also need to worry about Bitcoin ETF approval?
Historical data says “yes”.
The table below shows how Bitcoin prices have reacted in the 12 months prior to other major launches in the Bitcoin investment space.
Twelve months before the launch of both Bitcoin futures and direct coin-based listings by CME, Bitcoin prices soared.
However, in both cases there was a sharp pullback after the release.
However, many investors do not believe this applies to ProShares Bitcoin ETF approval.
Unlike CME futures and Coinbase’s direct listing, this is just the first of the nine other proposed Bitcoin ETFs to be launched by the end of 2021.
This is not a single important event in Bitcoin’s history, but just the beginning of a series of events set up to change the big-money relationship with Bitcoin.
In addition, financial institutions typically invest in and make changes to their portfolios quarterly.
This means that a large number of transactions will be seen on these new ETFs in January 2022.
Therefore, it is unlikely that this ETF launched in 2021 or in fact either ETF will cause significant fluctuations in Bitcoin prices in 2021.
This is exciting news for retail investors looking to take part in the current Bitcoin Rally, where Bitcoin has just reached its all-time high weekly closing price.
Now is a great time to embark on Bitcoin action with Revix, which is doing everything it can to help users get the most out of this Bitcoin price hike.
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Remember that cryptocurrencies are a risky investment.
You should not invest more than you can afford to lose. Before investing, consider your level of experience, investment objectives and seek independent financial advice as needed.
This article is for informational purposes only.
The expressed views are opinions, not facts, and should not be construed as investment advice or recommendations.
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