Last update: Jun 9, 2021

Everything You Want To Know About Bitcoin ETFs In 2021

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In 2021, it is difficult to find investors who have not considered investing in Bitcoin.

It is no surprise, especially while evaluating the growth the cryptocurrency has seen in the past couple of years.

However, many people do not ultimately buy Bitcoin because of its unstable nature. It is where the Bitcoin ETF comes into the stage.

While traditional ETFs help traders manage multiple investments with ease, Bitcoin ETFs make it easier to deal with BTC.

This guide explains what a Bitcoin ETF is and how you can use them for trading.

What is a Bitcoin ETF?

Bitcoin ETFs

Before understanding the Bitcoin ETF, we must understand what an ETF is.

An Exchange Traded Fund, better known as ETF, is a type of security you can buy or sell using a typical stock exchange.

However, this security may not always track an individual company.

Instead, it might represent a set of securities, an index, a commodity, or other types of assets. 

For example, the SPDR S&P 500 ETF allows you to invest in all the companies in the S&P 500 index. Oil and gold are other assets that you can track through an ETF.

As you can see, ETFs make it easier for traders to benefit from the growth of an underlying asset — without directly investing in the asset.

Following the same logic, a Bitcoin ETF tracks the value of Bitcoin (BTC).

By investing in a Bitcoin ETF, a trader can get exposure to the development of Bitcoin without buying the cryptocurrency from a crypto exchange or peers. 

Compared to the actual process of buying and storing Bitcoin, investing in a Bitcoin ETF is easier and more convenient.

It also appears to be a safer choice for many investors out there. This aspect of ‘extra’ security is one reason for the increasing demand for Bitcoin ETFs.

Brief history of Bitcoin ETFs

History Bitcoin ETFs

The history of Exchange Traded Funds goes back to 1993 when the first ETF was launched. Since then, ETFs have become one of the easiest ways to invest in various assets at once.

As we said, you can track the price of assets like gold and oil through corresponding ETFs. The history of Bitcoin ETFs is a little different, though.

Many bright minds had proposed a Bitcoin ETF as early as 2013. In 2017, we saw the first petition to launch a Bitcoin Trust, led by Cameron and Tyler Winklevoss.

However, the US SEC did not approve the petition. Other companies like Cboe Global Markets have also sought approval from the SEC but were met with failure.

By 2021, the list of applications includes big names like Capital, Bitwise, and Fidelity.

In North America, however, things are a bit different. In February 2021, the Ontario Securities Commission approved two Bitcoin ETFs: Purpose Bitcoin ETF (BTCC) and Evolve Bitcoin ETF (EBIT).

Investors can now trade these ETFs on popular stock exchanges and platforms like the Toronto Stock Exchange and TradeBlock. Many say that this green signal from Canada’s financial regulator will soon push the US SEC to approve ETFs.

Why do we need a Bitcoin ETF?

Bitcoin ETF Why Use Them?

Many investors want to get exposure from the value of Bitcoin, but they are worried about the security and legal constraints.

As we know, most governments do not recognize Bitcoin as a legal tender. ETFs can solve this problem for the most part.

An investor can buy a Bitcoin ETF and track the growth of the underlying asset, which is Bitcoin.

But, they do not have to worry about buying or storing Bitcoin. All these logistics are taken care of by the ETF provider.

An investor does not have to worry about Bitcoin wallets or private keys.  There is no need to worry about tax-related regulations, either.

These advantages appeal to a lot of investors.

How do Bitcoin ETFs work?

Blockchain ETFs

At its core, a Bitcoin ETF works in the same way a conventional ETF does. There will be a company that offers the Exchange Traded Fund.

This company will buy and hold Bitcoin and track its value.

The company will also list the ETF in a conventional stock exchange, and you can buy the ETF just like you buy a share from Apple or Tesla.

The value of the ETF will depend on the amount of Bitcoin the company has in its inventory, though.

As an investor, you can buy these ETFs from a conventional stock exchange. For instance, in the case of Purpose Bitcoin ETF, it is available through the Toronto Stock Exchange.

By the way, unlike convention ETFs, Bitcoin ETFs do not provide you a dividend. For instance, if you buy the S&P ETF, you will receive compensation whenever one of the companies in the list records a profit.

This process would not happen with Bitcoin ETFs since Bitcoin is decentralized.

Pros

  • As an investor, you do not have to worry about the technicalities of buying and storing Bitcoin.
  • You can use a conventional stock exchange or trading app to manage your Bitcoin ETF investment.
  • ETFs are free from the hassles that direct cryptocurrency investments entail in legality and tax filings.
  • Because traditional stock exchanges offer better liquidity, the process of buying/selling ETFs is more straightforward.

Cons

  • You have to pay a considerable amount of management fee and service fee to the ETF company.
  • Unlike Bitcoin, Bitcoin ETFs cannot be traded 24*7. You will have to wait until the trading hours.
  • You may have to compromise your anonymity and control since a third party manages the fund.

Conclusion

Even after weighing in the pros and cons, Bitcoin ETFs seem capable of changing the crypto-economy for good. More importantly, Wall Street believes that Bitcoin ETFs can rock the Bitcoin world once approved.

However, the future of Bitcoin ETFs in the United States depends entirely on what the SEC decides.