Bitcoin ETFs: How Do They Work?


Understanding what is a Bitcoin ETF is not that difficult.

ETFs (Exchange traded funds) are basically investment instruments (or vehicles) that track sightless assets, such as bonds, cryptocurrencies, and commodities. These funds custody those assets, responsible for keeping the fund’s assets safe.

That is one of the worries about ETFs, custody risks. This is essential due to the risk of being hacked or going out of business.

These funds are operated in a similar way to public equities and are traded on exchanges.

How Do They Work?

Let’s suppose that you are buying Bitcoin; you need to face all the process that it takes. That includes buying as well as choosing a wallet, learning to use it, and set it up.

Now, let’s use another context where you use ETFs;

Just buy an ETF - which takes care of tracking BTC - and that’s it!

In this way, we can get the same returns from our investment as if we were in the actual possession of the coins we are tracking.

Another advantage of using an ETF is that we are able to earn dividends or interest.

Why Are ETFs Good

We can note that ETFs are highly valuable when it comes to mitigating risks while you are exploring hot markets. Recognized as an essential tool for wary investors, ETFs are the new perfect beginning for new investors.

The Bitcoin ETFs take Bitcoin as their sightless asset.

ETFs will help the investors; when you buy ETFs you do not have to worry about its challenges like how to maintain a Bitcoin wallet or keeping it safe from hackers.

People who invest in ETFs are able to explore and to get exposure to certain assets even without actually physically buying them.

Bitcoin ETFs are passive investment instruments; this means we don’t have to be managing or supervising them, and we don’t even need to pay fees to investment professionals.

When you buy bitcoin ETFs, you automatically acquire shares in a portfolio, which is linked to a market index which replicates its performance.

Another benefit about Bitcoin ETFs is that they allow all the investors to short sell shares or any other asset. For example, if they believe that the Bitcoin price will go down, they can enter a short position on Bitcoin - something we can’t do with the traditional cryptocurrency market without actually owning the asset first.

Are these Bitcoin ETFs affecting the price of Bitcoin?

Many investors and analysts think ETFs will help increase the cryptocurrency’s adoption and lead their prices upwards. With Bitcoin ETFs, investors are able to trade Bitcoin in a more convenient way.

So, if you are an investor who is looking to get involved in this world of digital cryptocurrencies, but you don’t have the time to learn all the benefits and risks of the crypto investment space, you can invest in ETFs as an alternative.