Today, many ways to invest in the financial markets and buy digital currencies have been invented, each following a specific method. Due to the emerging cryptocurrency market, some investors prefer other methods of buying and selling Bitcoins. One of these forms, also very popular, is the Bitcoin ETF.
Bitcoin ETF trading is considered a bridge between traditional financial markets and the digital currency market. This method has become very important these days and those who want to invest in the cryptocurrency market should better turn to Bitcoin ETF. Later in this article, as we define this category, we will also look at its history and advantages.
Definition of Bitcoin ETF
The term ETF refers to exchange funds. The ETF financial tool allows market participants to invest in this digital currency without having to buy Bitcoin directly; Because their system is designed to always follow the price of Bitcoin. So, as the price of Bitcoin increases, the price of its ETF also increases, and when the price decreases, the value of the ETF also decreases.
If we want to look at ETFs in more detail, we should say that ETFs are funds that are bought and sold as securities in the financial markets; How to buy and sell shares in a factory or company. For this reason, buying an ETF is considered an indirect way to invest in Bitcoin.
History of Bitcoin ETFs
The idea of creating a Bitcoin ETF was first proposed by the Winklevoss brothers. They submitted an application to register the Winklevoss BitCoin Trust with the United States Securities and Exchange Commission, but it was rejected. Many other applications were filed in this area until 2017, but all were rejected by the Securities and Exchange Commission due to the potential for these funds to manipulate the price of Bitcoin and a lack of transparency.
Years later, the first Bitcoin ETF called ProShares BitCoin was approved and launched. After this ETF, other ETF funds were opened not only in the US financial market, but also in the financial markets of other countries; In this way, traditional financial markets were connected to the digital currency market and also created the opportunity for investors in these markets to buy Bitcoin.
Meaning of Bitcoin ETF
Many economic activists have never had a positive view of Bitcoin and the digital currency market in general. These investors have never allocated capital to this market because they were not used to entering the cryptocurrency market or did not have confidence in the security of their assets. However, with the emergence of the Bitcoin ETF and the possibility of investing in the form of securities purchases, traditional market activists have also sent large amounts of capital to this market, which has led to an increase in the price and greater profitability of cryptocurrencies.
Bitcoin ETF Structure and Functionality
To fully understand the structure and functioning of Bitcoin ETFs, several aspects must be examined. In the rest of this section, we will discuss the key issues related to this topic.
Real Estate Asset
Bitcoin ETFs can operate in two ways:
- Buy and hold Bitcoin
- Tracking Bitcoin futures contracts
In the first case, the fund buys and holds Bitcoin and offers its shares on the financial markets. In the second case, the fund tracks Bitcoin futures contracts executed on the derivatives markets.
Pricing Method
In order to ensure that the pricing is done correctly and that the price of the fund units is always as close as possible to the price of Bitcoin, a number of complex economic algorithms and market operators are used. Market makers are financial companies or specialists who always facilitate transactions by providing buy and sell prices and providing the liquidity required by the market.
How to manage money and expenses
Professional financial companies are responsible for managing Bitcoin ETFs. By buying, holding and managing Bitcoin-related assets, they offer the opportunity to indirectly invest in Bitcoin; For this reason, people who want to buy ETFs must pay a certain amount to these companies in the form of management fees. The amount of this fee depends on the amount of assets managed by the ETF companies.
Advantages of Investing with Bitcoin ETFs
Some of the main advantages of investing in a Bitcoin ETF include:
No involvement in complex technologies
In this style of investment, the investor has nothing to do with the complex technologies of the digital currency world, including blockchains, decentralized exchanges, wallets, etc., and the process of buying and selling is easy to carry out.
Reduce security risks
There are always many risks associated with Bitcoin custody. The public and private keys of cryptocurrencies can be lost or stolen for any reason. Investing in Bitcoin ETFs does not pose such risks and is considered a very good investment option for users who are not familiar with the security aspects of digital currencies; Of course, the risk of market fluctuations always lurks in all assets and unfortunately cannot be ruled out.
Investing through a retirement account
Since the Bitcoin ETF is traded on financial markets under government supervision, it is possible to invest in Bitcoin through retirement accounts; Of course, such work has not yet been approved and may involve many financial risks.
Less widespread
One of the technical terms of the financial markets is the spread. The spread refers to the difference between the buying and selling prices. In the digital currency market, spreads can be huge, but not in the case of Bitcoin ETFs; Because the presence of professional sellers ensures a good balance of prices.
Supervision by responsible institutions.
One of the main advantages of ETFs that made them very popular is the supervision of institutions such as the United States Securities and Exchange Commission (SEC). Bitcoin ETF providers must always submit their financial reports to these institutions and conduct all their activities transparently; For this reason, many people consider investing in a Bitcoin ETF to be a safer option than buying digital currencies directly.
Disadvantages of Investing with Bitcoin ETFs
Although Bitcoin ETFs have many advantages, this financial instrument is not without its drawbacks. Some of the main disadvantages of Bitcoin ETFs are:
No Direct Ownership
Individuals who invest in Bitcoin ETFs do not directly own Bitcoin. In fact, like many other people who own Bitcoin, they cannot transfer their assets directly to the digital wallet and benefit from features such as Bitcoin payments.
Risk of Price Difference from the Real Market (Futures-Based ETFs)
One of the risks associated with futures-based ETFs is the possibility of price differences from the real Bitcoin market. This happens because of two economic concepts called contango and backwardation. Sometimes, controlling these issues has become a difficult issue and cannot be easily resolved.
Lack of Global Access
Financial markets in some countries have not yet recognized Bitcoin ETFs and therefore cannot be traded with them. Since the financial market of each country is under the supervision of its government, the creation of the possibility of trading ETFs requires government approval.
Liquidity issues in small financial markets
Although the presence of ETFs can increase the liquidity of the overall Bitcoin market, if the ETF belongs to a financial market with low volume, the liquidity of the ETF may decrease in the event of a financial crisis. It is always recommended to buy ETFs in markets with a volume higher than the volume of the cryptocurrency market.
Buy Bitcoins through the Cermix exchange
Bitcoin ETFs are not the only safe way to enter the digital currency market. In fact, there are other safe methods that can be used with each of them. The best way to buy Bitcoins for Iranian users is to use one of the national exchanges. Fortunately, many Iranian exchanges have started operating in recent years, each of which offers many features to its users.
One of the best Iranian exchanges is Sermix. In addition to providing a secure trading platform, Cermix has created a simple and understandable environment so that even new traders can easily benefit from its services. Buying Bitcoin on Cermix is no different from buying a Bitcoin ETF and is just as safe; Of course, since Cermix does not have the disadvantages of ETFs, it can be considered better than ETF funds in many ways.
Summary
In this article, we have tried to discuss the key points of the Bitcoin ETF and create a general familiarity with it. Although ETFs are a channel of communication between traditional financial markets and the digital currency market, these two markets cannot yet fully communicate with each other; Certainly, in the not too distant future, other innovations will be introduced that will reduce the distance between these markets and pave the way for a new season of economic relations.
Post a Comment
0Comments