Bitcoin Spot ETF (Exchange-Traded Fund) is a fund certificate of an investment fund that owns Bitcoin trading on traditional stock exchanges. It invests directly in Bitcoin and holds physical Bitcoin, not through futures contracts like the bitcoin futures ETF. This means that each share in the ETF represents a portion of actual Bitcoin.

source: internet

Bitcoin spot ETF

A Bitcoin ETF (or Bitcoin exchange-traded funds) is a group of assets linked to Bitcoin or the Bitcoin price offered on traditional stock exchanges by brokerage firms, traded in the form of fund certificates ( ETF).

The purpose behind these ETFs is to provide a means of accessing cryptocurrencies for investors who are uncomfortable with the manipulations of investing in these assets without actually owning them. .

Bitcoin ETFs use a similar structure to traditional ETFs to enable trading. The price of the ETF will closely follow the price of Bitcoin. As the value of Bitcoin increases and decreases, the value of the ETF will increase and decrease accordingly.

When mentioning Bitcoin ETF, many people will think that Bitcoin ETF will be backed by BTC held in the wallet. In fact, there are two main types of Bitcoin ETFs: Bitcoin Physical ETF and Bitcoin Futures ETF.

Bitcoin ETF classification

Bitcoin Physical ETF

Bitcoin Physical ETF, also known as Bitcoin spot ETF, is an ETF that operates like ETFs in the traditional market. Fund management companies will purchase BTC, investors can participate in investing by buying shares in ETFs, these shares represent ownership of BTC, meaning that investors indirectly owns BTC without having to bear the risks related to the crypto market. This also means that the value of these types of BTC ETFs will closely follow the actual value of BTC traded on the market.

There have been many Bitcoin-related ETFs approved by the SEC, however, they are mainly Bitcoin Futures ETFs, in fact there are still no Bitcoin Physical ETFs allowed by the SEC to trade on US stock markets. .

Recently, the SEC continued to deny Grayscale Investments' application to convert Grayscale Bitcoin Trust (GBTC) into a Bitcoin Spot-based ETF. However, Bitcoin Physical ETFs are more widely accepted in other countries such as Canada, Brazil, etc.

Bitcoin Futures ETF

Because the SEC has historically favored ETFs tied to Chicago Mercantile Exchange (CME) Bitcoin futures contracts, at present, the underlying assets in Bitcoin ETFs on US stock markets are often Linked to Bitcoin futures contracts and traded on exchanges such as New York Stock Exchange ARCA, Nasdaq...

A futures contract is an agreement between two parties to exchange a specific asset with standardized quality and quantity, at an agreed price today but for delivery at a different time in the future.

Thus, BTC futures contract is an agreement between two parties to exchange one unit of Bitcoin contract, the fund will create shares at a price based on the current price of one unit of contract and offer the exchange to buy sold on the floor. Therefore, the Bitcoin futures ETF is backed by the Bitcoin price in the derivatives markets (CME's Bitcoin BRR reference rate) instead of the Bitcoin spot value.

Advantage

Easy to Participate: Bitcoin Spot ETF allows investors to easily and conveniently enter the Bitcoin market through traditional exchanges, helping them avoid the process of buying and storing Bitcoin.

Safety and security: Investors do not need to worry about the security and storage of digital assets, as the ETF is responsible for this.

Regulatory standards: ETFs are often subject to regulatory and reporting standards, which can provide transparency and reliability for investors. Furthermore, if approved, ETF funds will be managed by state competent agencies, so investors can feel secure in investing without fear of legal risks.

Diversify your investment: Bitcoin Spot ETF can allow investors to diversify their investment portfolio by adding Bitcoin to their portfolio, along with other traditional assets.

Defect

In addition to the above advantages, Bitcoin ETF is also not without disadvantages:

  • Management fees: ETFs typically charge an annual management fee for the activities they offer. Compared to incurring one-time fees (or even 0%) when buying and selling on some cryptocurrency exchanges, owning shares in a Bitcoin ETF can result in high management fees over time.

  • Trading hours: The crypto market operates 24/7, investors can participate at any time. However, the Bitcoin ETF will only trade depending on the opening and closing times of the stock market.

  • Loss of payment features: Bitcoin can be used as a means of payment in some countries, but Bitcoin ETF of course cannot be used directly for payments, which eliminates the instant payment.

  • ETF prices differ from the actual value of Bitcoin: ETFs track the price of a managed group of underlying assets, so sometimes the ETF price does not always match the fund's net asset value.

Importance of Bitcoin ETF

Bitcoin ETFs allow investors to easily diversify their investments without directly owning the assets the fund tracks. These ETFs provide a simple solution for buying and selling assets, helping to maximize returns and minimize risk.

Bitcoin ETF is a simulation version of the value of the world's largest cryptocurrency, allowing investors to access Bitcoin without having to perform complex transactions like in the money market. encode. Bitcoin ETF holders do not invest directly in BTC, so do not need to worry about the complicated storage and security processes associated with crypto assets. Because of these benefits, a Bitcoin ETF, once approved, could attract a strong influx of investment capital into the cryptocurrency market.

Many people expect that if the Bitcoin Spot ETF is approved, it will open a new door for investment capital to pour into the world's largest cryptocurrency, because this ETF will be traded on a major US stock exchange. , allowing individual investors, large institutions and even pension funds to participate.

One advantage of Bitcoin ETFs is that investors can short them if they believe that the price of BTC will decrease in the future, something that is not possible in traditional trading.

Another advantage is that Bitcoin ETF helps investors save time researching the market. When a stock investor wants to get into the cryptocurrency space but does not have enough time to research the market, he can focus on trading an instrument that he understands better, and Here is the Bitcoin ETF.