An exchange-traded fund (ETF) is a fund in which there are one or more assets and individuals can invest in the assets they want by buying shares of that fund.
Buying and selling of ETF shares is done through the stock exchange, and its transaction is like a normal share transaction; Therefore, it is official and in accordance with the stock exchange regulations of a country.
Today, there are ETFs for very important and practical assets such as gold and oil, and they are traded every day on the stock exchanges of different countries around the world.
Investors who buy ETF shares can invest in it without going through complicated buying processes and without experiencing the risk of holding an asset.
For example, if you buy a share of a gold ETF, you are investing in gold without owning actual gold.
Simply put, a Bitcoin ETF is a fund that holds a large amount of actual Bitcoin or is tied to the Bitcoin futures market (relative to the type of fund). Individuals and legal entities can trade Bitcoin ETF shares like a stock on the stock exchange. The stock price of the fund rises and falls based on the price of Bitcoin.
Bitcoin ETF shares are traded on stock exchanges instead of digital currency exchanges. It is obvious that the transactions are done only during the hours when the stock exchange of a country is open.
In general, there are two types of exchange-traded funds for Bitcoin:
Physical ETF: This type of fund is fully backed by real Bitcoin; The big risk with that is that it is very difficult to hold real Bitcoins (in high volume).
Futures ETF: This type of fund is not directly backed by Bitcoin; Rather, it uses the futures market. The full explanation of futures contracts is not included in this article; But just know that the real bitcoin is not stored in it, and the value of the stock goes up and down only with the price of bitcoin.
One of the main questions that may be asked about a Bitcoin exchange-traded fund is what exactly is the benefit of a Bitcoin ETF to an investor that would make someone buy shares of Bitcoin instead of Bitcoin itself. Maybe it is better for an ordinary investor to buy his own Bitcoin; But for wealthy individuals or investment companies, buying ETF shares is a great opportunity; for the following reasons:
A Bitcoin ETF is recognized by regulatory bodies. If you are a large organization and you are worried about buying Bitcoin directly for legal reasons, you can invest in its exchange fund to be covered and supported by legislative institutions. For example, in the United States, the Securities and Exchange Commission (SEC) is directly responsible for protecting ETF investors from numerous market risks.
ETFs are also inheritable under securities laws, a rare benefit for those concerned about the fate of their bitcoins after death.
For someone who has worked in the stock market, entering the world of digital currencies seems complicated. To invest in Bitcoin, such a person can buy a share of the fund like a normal share in the stock market.
If you are a rich person and want to buy a lot of bitcoins, you may worry about the safe keeping of bitcoins as well as the liquidity challenge. In this case, buying ETF shares instead of real bitcoins can make sense.
In most countries, ETFs include tax exemptions or rebates. For an investor who has a lot of bitcoins, it is risky to fall out with the tax authorities and may prefer to buy ETFs instead of real bitcoins.
In an exchange fund, in addition to Bitcoin, other assets such as company shares or gold may be invested; Therefore, a person who owns a share of an ETF can benefit from the profits of all the assets in the fund at the same time.
In fact, investing in ETFs is one of the best ways to help you implement this idea: “Don’t put all your eggs in one basket.”