Review What Is Bitcoin Traded Fund(etf)

Discussion in 'Crypto Learning Center (Library)' started by philipj, Aug 18, 2018.

  1. philipj

    philipj GrandMaster Crypto Guardian

    There have been lots of optimism sorrounding bitcoin traded fund (ETF) as to how its approvl by SEC will dramatically increase the value of bitcoin since it will open the doors to massive institutional traders/investors trying to have a piece of the pie called bitcoin. What is bitcoin ETF?

    An exchange traded fund (ETF) is simply a security that tracks some underlying assets, whether that be equities, bonds, commodities, or cryptocurrency.

    An ETF takes custody of the underlying assets it tracks. Then it issues a large number of shares that represent the ownership of those assets. In

    Types of Bitcoin ETFs

    1. ETFs that physically hold BTC: E.g VanEck & SolidX (backed by the CBOE)

    2. ETFs that purchase Bitcoin derivatives. These ETFs try to mimic the performance of Bitcoin by trading Bitcoin futures, options, swaps, money market instruments, and investing in other pooled vehicles. (Risk of margin calls and management fees!!) .E.g the Direxion ETF.

    The first one is the far better and more secure option.

    The biggest worry surrounding ETFs that hold Bitcoin is custody risk. But mitigating custody risk is easier than mitigating the risks of improperly tracking Bitcoin by trading derivatives. With derivatives based ETFs investors need to place a great amount of trust in the active manager to approximate the performance of Bitcoin using derivatives. It will be less transparent, cost more, and a small price change can have a big impact on performance because of leveraged trading.

    There have been great progress on custody solutions for crypto assets this year and the BTC in VanEck & SolidXs proposal are insured. So this product has the best chances of approval
    gbolahan likes this.
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  3. gbolahan

    gbolahan GBOLAHAN Crypto Guardian

    I pray SEC should approve it