Do you know what Bitcoin ETFs are and why have they contributed to the rise of that cryptocurrency? By Karupanocitizen.

in hive-175254 •  10 months ago 

A few days ago, specifically on October 19, the first exchange-traded fund (BTF) indexed to Bitcoin was listed for the first time on Wall Street, in this case, the Proshares Bitcoin Strategy ETF, which was listed on the NYSE Arca Exchange, This news helped increase the value of BTC to approximately $ 66,000.


Although it is not the first Bitcoin-based ETF to be traded on a stock exchange (this merit goes to the Canadian Stock Exchange), this event has represented great news for the crypto market, as it makes it available to traditional investors Americans the ability to carry out operations, based on bitcoin, without having to leave their comfort zone of Wall Street.

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What is an ETF?

In general terms, **Exchange Trade Funds (ETFs)** are exchange-traded funds that are traded in the stock markets and are settled the same as when buying shares, which is why they are considered a hybrid asset between shares and business funds.

In simple terms, ETFs come to represent the value of the assets that serve as a reference or guarantee, for example, there may be ETFs of raw materials such as gold, iron, oil, etc., which could be supported by the raw material itself, for shares within companies that exploit said raw material, for production rights, etc. There are multiple ways to manage the underlying asset of ETFs.

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Bitcoin ETH

In the same way, as if it were a commodity ETF, this type of investment is endorsed or related to the future value of Bitcoins, in this way an investor can "bet" on the value of an asset whose price moves from the same way that BTC would, so if the value of this cryptocurrency increases, in the same way, the profitability of said investment will increase, on the contrary, if it decreases, the investor may experience losses in the operation.

The first ETH of Bitcoin was traded on the Toronto Stock Exchange on February 18, 2021, and it was the Purpose Bitcoin ETF (BTCC), this ETF has physical support of bitcoins, that is, the issuers of a said instrument, in this case, the Purpose Company buys bitcoins from institutional liquidity providers, stores them in a cold wallet and based on that guarantee issues the referred ETFs to be traded on the stock market.

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Why invest in the EFT of Bitcoins and not in BTC directly?

It must be remembered that one of the main concerns of institutional investors is the decentralization associated with Bitcoin, that certain "dark aura" that has promoted bad publicity has generated that many still feel doubtful when investing in crypto assets.

In addition to the previously mentioned unfounded fears, investing in cryptocurrencies requires certain knowledge in the blockchain environment that not many investors are yet in the mood to learn: handling of wallets, different platforms to make money flow, the use of smart contracts, direct responsibility for the safety of funds, etc., all of the above generates the need to deposit the “complicated” part of the operation with someone to focus more on what traditional investors are used to doing, trading operations.

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Influence of ETFs on the value of cryptocurrencies

Everyone knows that any variation in the value of BTC, as it is the reference cryptocurrency, will also affect the value of the rest of the altcoins, therefore, the influence of ETFs on the value of BTC will indirectly affect the rest of the cryptocurrencies. Bearing in mind the above, we can say that this new investment tool could generate:

  • Increase in the growth of interest in cryptocurrencies: many investors would be willing to negotiate within markets, "regulated" and "safe" securities associated with cryptocurrencies, given the current boom in this type of assets.

  • Increase in value: given the above, the value of cryptocurrencies could increase as a result of the increase in demand for crypto assets that support ETFs.

  • Improvement in the perception of cryptocurrencies as investment tools: the fact that financial mechanisms guaranteed by cryptocurrencies are created, within a regulated market, with established legal conditions, could change the somewhat "dark" perception of investors that many they still have regarding them.

  • By not having to “deal” with the technical aspects related to the management of crypto assets, investors would be more willing to generate an increase in the mobilization of funds in FIAT currencies towards cryptocurrencies.

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After the above, I would like to know your opinion, did you know what EFT and EFT Bitcoins were? What opinion do you have regarding this new investment mechanism? What are the benefits or disadvantages that you can observe with the investment in EFT practice?, I hope to read you in the comment box.

We keep reading!

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Hello @karupanocitizen, I didn't really know about Bitcoin ETFS, I think it's an interesting way to include other assets as solid support for bitcoin, or at least that's how I understood it. And this will certainly attract more investors than initially expected. I would like to see closely how it would lock with Bitcoin EFTS.

Thank you very much @tocho for your comment, sorry for the lateness of my answer.

The fundamental idea with Bitcoin ETFs is to be able to offer the opportunity to investors, who are not or do not want to relate to the blockchain environment, to invest in it. This opens up a whole range of possibilities for a greater inflow of capital to our environment, which in turn has a very positive impact on the value of our cryptocurrencies.

Greetings, thanks for visiting me. Have a beautiful day!

Hello @karupanocitizen

Extraordinary post, I congratulate you for your very complete and educational article, I really did not know that ETF has contributed to the rise of Bitcoin, but certainly as you well describe it somehow can improve in the perception of cryptocurrencies as investment tools.

Best regards, be well.

Greetings my friend @lupafilotaxia, I apologize for taking so long to answer you.

Grateful for the positive assessment of my content, indeed ETFs are a golden opportunity to further publicize all the potentialities of the cryptographic environment, greetings