How to approach to spot bitcoin ETFs
In recent times, the talk of the town in the crypto space has undeniably revolved around ETFs (Exchange-Traded Funds). As an independent observer, approaching this ETF phenomenon requires a careful consideration of various factors and a thoughtful analysis. In this blog post, we will explore how one should approach and contemplate the ETF trend, delving into key aspects that deserve attention.
First of all, what is ETF?
An Exchange-Traded Fund (ETF) is a type of fund that represents various assets and is traded on stock exchanges. It typically tracks an index, commodity, or a group of assets. ETFs can be bought and sold on the stock exchange like stocks and often offer low transaction costs and liquidity advantages. By including ETFs in their portfolios, investors can achieve broad asset diversification. ETFs have become popular among many investors due to their advantages in providing diversification and liquidity.
So what is bitcoin ETF?
A spot Bitcoin ETF is an investment fund offered with the cryptocurrency Bitcoin. Similar to other stock exchange-traded funds (ETFs), it is made available for trading on securities exchanges
What is the use of bitcoin ETF?
Both individual and institutional investors will be able to buy and sell through stock exchanges in the United States. Additionally, investors can access these assets through funds without the need to open trades on cryptocurrency exchanges.
So let's delve into that!
Just prior to the approval of spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission on Wednesday night, the commission reissued a cautionary statement, reminding investors to resist the temptation of making investment decisions based on the "fear of missing out" (FOMO).
The advisory highlighted the inherent volatility of digital assets and pointed out the roller-coaster nature of trendy cryptocurrency investments, where valuations experience both significant highs and lows, resulting in gains and losses amounting to billions of dollars.
SEC shared that;
While the SEC's approval brings standardization and regulation to digital asset investing, financial experts are advising caution. They are warning mainstream investors to approach Bitcoin (BTC-USD) with care, as it is still considered a speculative asset.
"From a highly conservative financial standpoint, one must exercise extreme caution," said Kiran Garimella, Assistant Professor at the University of South Florida Muma College of Business, cautioning investors to scrutinize financial instruments that may not inherently represent specific underlying value.
The price of Bitcoin has been fluctuating around $46,500 lately, experiencing a surge to $49,000 last week in response to the SEC approval. In 2021, the value of a Bitcoin hit an all-time high, exceeding $65,000. However, within a year, it plummeted to approximately $16,000 as investor confidence in the sector waned.
Despite the crypto world being opaque to many Americans, the 11 new spot funds are now listed on platforms such as NYSE, CBOE, and Nasdaq— the same platforms used for trading traditional securities like stocks and ETFs.
According to Garimella, these new funds significantly reduce the administrative risks associated with Bitcoin investment. Previously, investors had to navigate complex processes, including setting up a wallet and using private keys to own tokens. Crypto exchanges also posed risks such as hacking and fraud.
Even though the funds are now standardized, there is still a strategic risk linked to investing in a Bitcoin fund. Garimella emphasizes that while it's great to capitalize on the value generated by Bitcoin, consistency and a systematic approach are essential for long-term success.
Widespread skepticism persists about cryptocurrencies in general, given their speculative nature. The lack of intrinsic value backing digital assets raises concerns, relying solely on investors' belief in the potential for price appreciation.
Vanguard Group, the second-largest ETF provider, has stated it has no plans to launch a spot Bitcoin ETF, aligning with their focus on traditional asset classes like equities, bonds, and cash.
On the contrary, Fidelity Investments, one of the world's largest asset managers, has launched the Fidelity Wise Origin Bitcoin Fund (FBTC), presenting it as an efficient way for investors to gain exposure to Bitcoin.
However, entering uncharted territory, Fidelity requires investors to execute its Designated Investment Agreement (DIA) when placing an order for the FBTC fund. This agreement certifies that investors are experienced, have a high risk tolerance, and can afford potential losses in the digital product.Still, these ETFs could be a safer way to own bitcoins because asset managers can reduce the funds' risk through sophisticated tactics such as opening up futures contracts, hedging, putting in call options, and improving laddering strategy.
"When you have an ETF that does all of that stuff, it introduces a certain level of stability or risk management to that underlying instrument," Garimella said. "In a crypto market, you're exposing yourself to a certain level of risk, which could be minimized with the right ETF."
Accessibility and Contact:
If you wish to learn more, share your thoughts and suggestions, or simply engage in conversation, feel free to reach out to me through the following channels:
Twitter: khubatt.apt
Discord: khubatt
I'm always available on these platforms. Don't hesitate to get in touch. I look forward to answering your questions and interacting with you!
references: article on yahoo finance How everyday investors and retirement savers should approach spot bitcoin ETFs
#BitcoinETFs #CryptocurrencyInvesting #SECApproval #FinancialCaution #DigitalAssetVolatility #InvestmentStrategies #BitcoinPriceFluctuations #CryptoMarketAnalysis #ETFStandardization #InvestorEducation #AssetDiversification #RiskManagement #CryptocurrencySkepticism #FidelityInvestments #VanguardGroup #FinancialInnovation
