BITCOIN vs BITCOIN ETF
UNDERSTANDING BITCOIN ETFs
Bitcoin:
- Definition: Bitcoin is considered a commodity and the underlying asset in bitcoin futures contracts. It is a digital or virtual currency that uses peer-to-peer technology to facilitate instant payments.
- Spot Market: Bitcoins that sell for cash are said to trade on the “spot” market. The bitcoin spot market is not regulated by the CFTC or the SEC.
- Volatility: Bitcoin can be highly volatile, and leverage created by futures contracts can significantly amplify both gains and losses.
Bitcoin ETF:
- Definition: A bitcoin futures exchange-traded fund (ETF) issues publicly traded securities that offer exposure to the price movements of bitcoin futures contracts.
- How it works: An investment company creates a subsidiary that acts as a commodity pool. The pool in turn trades bitcoin futures contracts typically in an effort to mimic the spot price of bitcoin.
- Advantages: Convenience, diversification, tax efficiency.
- Disadvantages: Management fees, ETF inaccuracy, limits to cryptocurrency trading, lack of Bitcoin ownership.
- Examples: ProShares Bitcoin Strategy ETF (ticker: BITO), VanEck Bitcoin Strategy ETF.
- Regulation: Regulated by the SEC, but risks and returns of a bitcoin futures ETF will differ from the risks and returns of buying bitcoin on the spot market, or when trading bitcoin futures.
NOTE: This post is mainly for educational purposes only and in no way a form of financial advice. Every information you come across in the crypto space shouldn't influence your decision making without proper research.
