What is Bitcoin ETF
A Bitcoin ETF is an Exchange-Traded Fund composed of Bitcoin or assets related to Bitcoin's price, tracking the price movements of Bitcoin or Bitcoin-related assets. An Exchange-Traded Fund (ETF) is a type of open-ended investment fund product. It tracks specific market indices, commodities, or asset categories (such as the price of a single commodity or a collection of securities). ETFs trade similarly to stocks, listed on stock exchanges and available for buying and selling throughout trading days.
For example, Bitcoin spot, Bitcoin-related stocks, futures contracts, and commodities are all considered assets related to Bitcoin's price. Therefore, Bitcoin ETFs encompass various types such as Bitcoin Futures ETFs, Bitcoin Spot ETFs, Bitcoin Commodity ETFs, and more. Investing in a Bitcoin ETF is essentially an indirect investment in Bitcoin. If the price of Bitcoin rises, the price of the Bitcoin ETF also rises, and vice versa.
The concept of Bitcoin ETFs emerged during the early stages of cryptocurrency development. As cryptocurrencies gained popularity and the price of Bitcoin surged, more retail and individual investors recognized Bitcoin's potential and desired to invest in it. However, due to the high-risk nature of the cryptocurrency market and factors related to legality and accessing funds, many investors were hesitant to invest directly in Bitcoin. They wish to seek a low-risk and legitimate avenue to invest in Bitcoin. Thus, Bitcoin ETFs were created. The main purpose is to assist investors from the traditional financial sector in indirectly participating in Bitcoin-related investments from a legitimate standpoint.
Currently, Bitcoin ETFs are primarily divided into two categories: Bitcoin Futures ETF and Bitcoin Spot ETF
Bitcoin Futures ETF
Bitcoin Futures ETFs, as the name suggests, are Exchange-Traded Funds based on Bitcoin futures contracts.
In traditional finance, a futures contract is a standardized agreement where two parties agree to exchange a specific quantity of assets at a specified price on a particular date. Bitcoin futures contracts are crypto derivatives similar to traditional futures contracts. The contract entails an agreement between parties to buy or sell a fixed quantity of Bitcoin on a specific day at a predetermined price. Bitcoin Futures ETFs create contracts based on the current price of Bitcoin and are traded on designated exchanges. In simple terms, if the current price of the Bitcoin futures contract is higher than the agreed-upon price at the contract's expiration date, investors profit; otherwise, they incur losses.
Among all Bitcoin ETFs, Bitcoin Futures ETFs are the most widely issued. They have been launched in various regions, such as the United States, Hong Kong, and Canada. In the United States alone, there are seven Bitcoin Futures ETFs, including ProShares Bitcoin Strategy ETF (BITO), Valkyrie Bitcoin Strategy ETF (BTF), and VanEck Bitcoin Strategy ETF (XBTF).
The most famous Bitcoin Futures ETF is the ProShares Bitcoin Strategy ETF (BITO), the first Bitcoin ETF to be launched in the United States on the NYSE Arca. It was approved by the SEC on October 19, 2021, and marked the first Bitcoin ETF within the United States.
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