New York (AP) — Interested in Bitcoin but don’t want to open a crypto trading account? Wall Street has something for you.
ProShares said on Monday that it plans to launch the first Bitcoin-linked exchange-traded fund in the country. The ETF for the ticker symbol “BITO” is scheduled to open on Tuesday and there is no regulatory opposition.
This is the latest milestone for the Bitcoin and general ETF industry. In a statement, ProShares CEO Michael Sapir compared the launch of crypto-linked ETFs with the launch of the first equity ETF in 1993 and the deployment of the first fixed income ETF in 2002. According to the Investment Company Institute, the US market for ETFs has grown to over $ 5.4 trillion, with approximately 9% of all households owning ETFs.
Meanwhile, cryptocurrencies have exploded into the $ 2.5 trillion industry after the creation of thousands of digital currencies. Bitcoin is the largest of all, with a total value of about $ 1.2 trillion. But like much in the crypto world, Bitcoin-linked ETFs are a bit complicated.
The fund does not invest directly in Bitcoin itself. Instead, it focuses on futures related to Bitcoin, a market that is monitored by US regulators and can itself be complex. That is, investors need to be especially aware of what they are buying and how it can work.
Here’s what an ETF does and doesn’t.
Why is this a big deal?
Bitcoin-related ETFs provide investors with a new way to join the fast-growing cryptocurrency space. Bitcoin prices have more than doubled this year, and more and more investors are seeing Bitcoin as a way to provide some protection to their portfolios.
Bitcoin prices are expected to move in ways that are less tied to economic expectations than stocks and other investments. If so, it can help support the portfolio when everything else is down or when inflation is high. However, there is no complete track record. Bitcoin lost about the same amount when the US stock market fell by nearly 34% at the start of the 2020 pandemic.
Some investors may not want to open a new trading account for cryptocurrencies. Instead, they can buy ETFs through their stock or an old school securities account that they may already be using for their IRA.
What is an ETF?
Exchange Traded Funds allow investors to easily buy an entire basket of investments. Some of the most popular ETFs track things like the S & P 500 Index, Gold Price, or High Yield Bond Index for major US stocks.
Unlike traditional investment trusts, which are priced once a day, investors can buy and sell ETFs throughout the trading day. This is especially important for cryptocurrencies, where prices can fluctuate rapidly from day to day, let alone minutes.
So does this new ETF track Bitcoin prices?
No, this is one of the most important differences. The fund invests in Bitcoin futures. This is basically a bet on where the Bitcoin price will go each month in the future.
The Bitcoin futures market is overseen by the Commodity Futures Trading Commission and may offer more protection to investors. However, it does not completely track the price of Bitcoin.
“This is not a substitute for owning Bitcoin directly,” said Todd Rosenbluth, Head of ETF and Trust Research at CFRA.
Who is this best for?
ETFs aren’t ideal for Bitcoin followers who want to invest in the long run, as they invest in futures rather than real Bitcoin, Rosen Bruce said.
He said that instead of buy-and-hold investors, at least initially, it is likely to be popular with short-term traders who want to make money from their volatility. There are certainly many opportunities for that.
About three months before this year, Bitcoin has halved from nearly $ 64,900 to less than $ 30,000. Since its lowest point in July, it has skyrocketed to almost $ 61,800.
How much will it cost?
BITO’s cost ratio will be 0.95%. That is, for every $ 10,000 invested in the fund, $ 95 will be used to pay the annual operating costs.
Such fees can be a difficult sale for Bitcoin fans, and many see cryptocurrencies as a way to eliminate intermediaries from the industry.
Is this the first and last such ETF?
No, some other fund companies have their own application of ETFs linked to Bitcoin futures. Some people may try to separate themselves by charging a lower fee.
In addition to expanding Bitcoin’s reach, Morningstar’s Global ETF Research Director Ben Johnson said ETFs will help build a larger ecosystem in the surrounding financial world.
With Bitcoin-linked ETFs, skeptical investors will have something they can sell short. In such transactions, they can bet that the price of an ETF will go down by borrowing the stock and selling it, hoping to buy it back at a lower price later. ETFs may also allow trading of options around them.
“The money you earn from all of that trading activity will reduce the money you earn just by collecting fees for those products,” Johnson said.
Bitcoin Investment May Be Boosted by Exchange Traded Funds | WGN Radio 720
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