Bitcoin (BTC) hits $62,000 as the U.S. welcomes the launch of the first bitcoin ETF based on bitcoin futures.

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Bitcoin ETF vs Traditional ETF

ETFs, or exchange-traded funds, are simply investment vehicles that trade stocks on public exchanges like the New York Stock Exchange (NYSE).

They use indices as a proxy for price tracking, tracking the price of securities such as stocks, bonds, commodities, etc.

In the case of a traditional ETF such as SPY that tracks the S&P 500, buying shares in that ETF would give fund managers the capital they need to buy 500 stocks in that ETF in proportion to the index.

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Bloomberg's $BITO

The fund does not hold actual bitcoins, nor does it own stocks backed by actual bitcoins. Instead, you get shares tied to contracts to buy bitcoin in the future.

After receiving cash from investors or market authorized participants through the stock creation process, fund managers use the cash to invest in targeted bets on Bitcoin. Suppose the price of Bitcoin rises after the futures expire, and then the ETF receives additional cash returns that can be reinvested.

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Drawbacks of Bitcoin Futures ETFs

While this is the first bitcoin ETF product to be listed on a U.S. public exchange, it is not a direct investment in bitcoin nor does it provide adequate exposure to changes in bitcoin's price.

In fact, institutional investors have long been able to obtain Bitcoin futures through CME futures contracts, and newly listed ETFs are also based on CME futures contracts, which reduces the attractiveness of institutions to use Bitcoin futures.

Also, ETFs are often a useful investment vehicle to track spot prices as closely as possible, given how far futures prices deviate from contango or backwardation.

The upcoming bitcoin ETF doesn't really take advantage of one of the ETF's key advantages, and because of contango, it could trade at a premium to bitcoin's spot price, making it more attractive as an investment vehicle than simply buying spot bitcoin lower force.

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The launch of a Bitcoin ETF also presents a major opportunity

Despite its shortcomings, this is still a big deal for cryptocurrencies, as they benefit from growing retail interest and retail capital.

With a Bitcoin ETF, ordinary people such as retail investors and pensioners can invest in cryptocurrencies during normal market hours and include them in their retirement and savings plans.

This is probably best for those who have a hard time getting over buying cryptocurrencies on exchanges like Binance, FTX, Gemini, or Coinbase; or managing cryptocurrency-related overheads like private keys or wallets.

We also see that other top asset managers such as Fidelity, Vanguard, and Blackrock may also race to launch and package their own Bitcoin ETFs and mutual funds to capture investor preferences and earn management fees over the next 10 years.

This article comes from the decentralized financial community and is reproduced with authorization.

Source：https://medium.com/stakingbits/bitcoin-etfs-are-coming-heres-what-you-need-to-know-2a9fb0a2c73e

This article comes from the decentralized financial community and is reproduced with authorization.