Blog U2U Network (U2U)

Categories: Bitcoin

What is a Bitcoin ETF? Everything you need to know about Bitcoin ETFs


Explore the differences between Bitcoin ETFs and traditional cryptocurrency investments. Learn about what is a Bitcoin ETF, the unique features, benefits, and potential risks of investing in Bitcoin ETFs.

The cryptocurrency market has experienced significant growth in recent years. As a result, aligning it with the traditional financial market has become a matter of time with the emergence of Bitcoin ETFs. So, what is a Bitcoin ETF? How can you invest in a Bitcoin ETF? Can we sell Bitcoin ETFs? Both modern and traditional traders are paying attention to this new investment option. Let's explore what Bitcoin ETFs are and how to invest in them.

Discover more: U2U Foundation is a Strategies Partner with Klaytnovators Hackathon 2023

What is a Bitcoin ETF?

A Bitcoin ETF or ETF Bitcoin is an exchange-traded fund that tracks and trades the price of Bitcoin. Bitcoin has been the best-performing asset in 2021. When we combine an asset like Bitcoin with a vehicle like an ETF, we get an incredibly interesting financial product.

what-is-a-bitcoin-etf

So, how can Bitcoin ETF surpass the leading cryptocurrency Bitcoin? What is a Bitcoin ETF?

Basically, investors and traders can have exposure to Bitcoin through a Bitcoin ETF without actually owning the physical Bitcoin. This is quite similar to Bitcoin CFDs. Bitcoin ETFs can track the price of Bitcoin through futures contracts on stock exchanges during trading hours and allow traders to open both Buy and Sell positions.

Discover more: Unleash crowdsourcing with blockchain technology - Unicorn Ultra (U2U)

After several years, the Securities and Exchange Commission (SEC) approved the first Bitcoin ETF by ProShares on the New York Stock Exchange (NYSE) since October 19, 2021. It is called ProShares Bitcoin Strategy ETF (BITO.US). 

What are the advantages of Bitcoin ETFs?

Many cryptocurrency enthusiasts believe that instead of investing or trading Bitcoin ETFs, it is better to buy actual Bitcoin from a cryptocurrency exchange.

Just like any other form of investment, Bitcoin ETFs have their own pros and cons, and not every solution is suitable for everyone.

bitcoin etf

Discover more: U2U Spring Hackathon: Webinar 3: The Web3 Growth Hacker - Pioneering Strategies for Startups

Perhaps the main advantage of Bitcoin ETFs is that investors who may not have a deep understanding of cryptocurrencies can participate in the cryptocurrency market. Your average person doesn't necessarily have to be familiar with cryptocurrency exchanges, securing wallets, or storing cryptocurrencies safely in hardware wallets—all aspects that are highly important for protecting digital assets or Bitcoin in its literal sense.

With Bitcoin ETFs, investors can access ETFs through their regular brokers and trade or invest in Bitcoin ETFs just like any other stocks or traditional assets. 

What are the disadvantages of a Bitcoin ETF?

Like any investment option, Bitcoin ETFs have their own drawbacks.

When comparing trading Bitcoin ETFs to cryptocurrencies, Bitcoin ETFs can only be bought or sold during market trading hours. As you may know, when buying and selling Bitcoin or any other cryptocurrency on exchanges, you can do so 24/7.

Holding your own cryptocurrency on an exchange doesn't actually incur any fees or management fees. Typically, when holding ETFs with a broker, you will have to pay management fees to maintain the account. This may not be financially significant from a Dollar Average Cost standpoint, if you plan to make many trades over time - such as a day trader.

Finally, when buying Bitcoin ETFs through a broker, you have to always comply with Know Your Customer (KYC) policies, where cryptocurrency exchanges, in general, are exempt. This can be seen as both an advantage and a disadvantage, as implementing KYC policies will ensure the protection of your account.

How to trade Bitcoin ETFs in 2023

Anyone involved in the financial industry has undoubtedly heard of Bitcoin and surely many other types of cryptocurrencies are existing.

what is bitcoin etf

Anything related to cryptocurrencies has been a trend throughout 2023, if not to say much earlier. It is always wise to first have some general understanding of the cryptocurrency market before committing real capital to trade or invest.

How to buy Bitcoin ETF

As mentioned, we offer options for both buying and selling ProShares Bitcoin Strategy ETF.

If you want to sell Bitcoin ETF CFD, you would select the Sell option. Short selling is a strategy applied when you believe that an asset will decrease in value.

For example, newly listed assets in the market are often known to have their highest prices when they are first released on a particular exchange. So what many traders can do is wait for a 24-hour period after the stock has been released and then short sell the market by opening a Sell position on the asset.

Expanding on that example, let's say the price of BITO.US peaked at around $43 during the initial listing period. At this point, if you decide to open a Sell position for 100 shares at a price of $43 and wait until the price drops to $36 (approximately the current price at the time of writing this), you can close that position to make a profit of $700. The calculation is straightforward: [($43 - $36) x 100].

It's also worth noting that any broker commissions can be deducted from trading profits. There's also always a possibility of incurring losses when selling or shorting the market.

How to sell Bitcoin ETF?

- Choose a Brokerage or Platform: To sell Bitcoin ETFs, you need to have an account with a brokerage or trading platform that offers access to the specific ETF you want to sell. Ensure that the platform supports the trading of Bitcoin ETFs and that you have sufficient permissions to sell ETFs on the platform.

- Log in to Your Account: Access your brokerage or platform account using your login credentials.

- Navigate to the ETF Trading Page: Once you are logged in, find the ETF trading page. Look for the specific Bitcoin ETF you want to sell in the list of available ETFs.

- Select "Sell" Order Type: On the ETF trading page, you'll typically see options to "Buy" or "Sell" the ETF. Select "Sell" to initiate the selling process.

- Choose Quantity: Enter the quantity or number of Bitcoin ETF shares you want to sell. You can sell a partial or full position, depending on your preference.

- Set Selling Price: Specify the price at which you want to sell the Bitcoin ETF shares. You can choose to sell at the current market price (market order) or set a specific price (limit order).

- Review and Confirm: Double-check all the details, including the quantity and selling price, to ensure accuracy. Once you are satisfied, confirm the sell order.

- Execute the Sell Order: After confirming the sell order, the platform will execute the trade. The ETF shares will be sold, and the proceeds from the sale will be credited to your trading account.

- Withdraw Funds: If you wish to withdraw the proceeds from the sale, you can request a withdrawal from your trading account to your linked bank account.

Please note that the process of selling Bitcoin ETFs may vary depending on the specific brokerage or platform you are using. Additionally, regulations and the availability of Bitcoin ETFs may have changed since my knowledge cutoff, so be sure to follow the instructions provided by your brokerage or platform and consult their customer support if you have any questions or need assistance with the selling process.

Always exercise caution when trading financial assets, and only invest what you can afford to lose. If you are uncertain about the selling process or have any concerns, consider seeking advice from a financial advisor or consulting the customer support of your chosen brokerage or platform.

What is ProShares Bitcoin Strategy ETF?

ETF 

ProShares Bitcoin Strategy ETF, as mentioned, is the first SEC-approved Bitcoin ETF, available on any specific stock exchange, in this case, the New York Stock Exchange (NYSE).

This fund is based on managed exposure to Bitcoin futures contracts as a way to increase capital value during trading hours without necessarily owning the actual underlying Bitcoin asset. According to Bloomberg, the BITO ETF reached a record high with $1.2 billion in trading volume on its second trading day— the fastest any ETF has ever reached the $1 billion milestone.

How to choose a good Bitcoin ETF?

- Regulatory Approval: Ensure that the Bitcoin ETF you are considering is legally approved and regulated by relevant authorities in your country. Look for ETFs that have received approval from reputable regulatory bodies.

- Tracking Methodology: Different Bitcoin ETFs may track the price of Bitcoin differently. Some ETFs may hold physical Bitcoin, while others may use futures contracts or other derivatives to track the price. Understand the tracking methodology and associated risks.

- Expense Ratio: ETFs charge fees for their management and operation, known as the expense ratio. Compare the expense ratios of different Bitcoin ETFs to find one with reasonable costs.

- Liquidity and Volume: Look for ETFs with high liquidity and trading volume. Higher liquidity usually leads to tighter bid-ask spreads and reduces the risk of price manipulation.

- Custody and Security: Examine the ETF's custody and security arrangements for holding Bitcoin. Robust security measures are essential to protect the ETF's assets from theft or hacking.

- Issuer Reputation: Consider the reputation and track record of the ETF issuer or management company. Look for established financial institutions with a history of managing ETFs and other investment products.

- Transparency: Choose an ETF with a transparent investment strategy and holdings. Transparency helps you understand how the ETF operates and what assets it holds.

- Tax Implications: Understand the tax implications of investing in the Bitcoin ETF in your jurisdiction. Tax treatment may vary based on the investment vehicle and your country's tax laws.

- Past Performance: While past performance is not indicative of future results, examining historical performance can give you insights into the ETF's performance during different market conditions.

- Diversification: Some ETFs may offer exposure to multiple cryptocurrencies or cryptocurrency-related assets, providing diversification beyond Bitcoin. Consider whether you want pure Bitcoin exposure or a broader crypto portfolio.

- Professional Advice: If you are unsure about choosing a Bitcoin ETF or investing in cryptocurrencies, consider seeking advice from a financial advisor who understands the crypto market and can help you make informed decisions.

Remember that investing in Bitcoin ETFs carries risks, including market volatility and the potential for losses. Be sure to conduct thorough research, understand the risks involved, and only invest what you can afford to lose. Additionally, regulations and the availability of Bitcoin ETFs may have changed since my knowledge cutoff, so always check the latest information and consult local financial authorities before making any investment decisions.

Conclusion

In conclusion, understanding what is a Bitcoin ETF is crucial as the convergence of cryptocurrencies with the traditional financial world continues to unfold. Now is the time for investors to pay attention and educate themselves on this evolving trend. By gaining knowledge about Bitcoin ETFs, you can better understand the investment decisions you make in the future. Follow Unicorn Ultra for more blockchain information.

Relate Post