New Bitcoin ETFs May Change Your Mind About Crypto Investing

You can now trade Bitcoin without actually owning it.
Updated Jan. 12, 2024
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Whether you love or hate it, Bitcoin has been the talk of the town for a long time when it comes to interesting financial investments, and it continues to be the crowning achievement of all cryptocurrencies. Its meteoric rise and occasional tumbles have captured the attention of investors worldwide and caused significant controversy. 

There's a new crypto player in the game — Bitcoin Exchange Traded Funds (ETFs). The Grayscale Bitcoin Trust (GBTC) and the iShares Bitcoin Trust (IBIT) marked their debut, opening up access to a new pool of potential investors.

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Significance of a Bitcoin ETF

The recent introduction of Bitcoin ETFs, including the GBTC and IBIT, marks a significant milestone in financial markets. Approved by the Securities and Exchange Commission (SEC), these ETFs allow investors to gain exposure to Bitcoin without directly holding the cryptocurrency. The move is expected to democratize access to the digital asset, drawing in a broader spectrum of investors. On their inaugural trading day, these ETFs witnessed substantial activity, with the GBTC closing up 0.5%, signaling a growing interest in integrating Bitcoin into traditional investment portfolios.

One of these new ETFs' biggest impacts is bringing new investors to start investing in the market. Those who would have shied away from owning Bitcoin in the past might now feel more comfortable investing in it through an ETF. The ETF fund holds Bitcoin, but as the investor, you would purchase shares of the ETF — not the actual Bitcoin itself. 

So, while the ETF will still fluctuate according to the price movements of the underlying asset (in this case, Bitcoin,) investors won't have to deal with digital storing, wallets, etc, that come with owning digital assets. You simply buy and sell the ETF like you would any other.

Benefits of an ETF

An exchange-traded fund in general boasts the flexibility of investing in a multitude of assets without taking on too much risk. They are often used to diversify an investment portfolio and as a rather "safer" investment compared to just putting all of your money into individual stocks, for example. 

Bitcoin ETFs bring a host of advantages to the table. ETFs, by their nature, simplify the investment process. Investors purchase shares representing a claim on the fund's underlying assets, making it more accessible and familiar than navigating the complexities of direct cryptocurrency ownership. 

The liquidity and tax advantages of ETFs, compared to traditional investment vehicles like mutual funds, make them an attractive option for financial advisors and institutional investors. These ETFs aim to bridge the gap between traditional finance and the crypto realm, making it more mainstream and approachable.

Is a Bitcoin ETF safer than investing in Bitcoin directly?

One of the burning questions surrounding Bitcoin ETFs is whether they offer a safer investment avenue than directly holding Bitcoin. The answer might lie in the intricate dynamics of the cryptocurrency market. 

The ETFs, such as GBTC and IBIT, provide a regulated and structured framework for exposure to Bitcoin, mitigating some of the risks associated with direct ownership. Remember that no investment is “safe” and there is a risk of losing money. An ETF is still a freely traded instrument and fluctuates with any other asset. 

The main difference is that all the players are known in the exchange of an ETF — the same does not ring true for trading Bitcoin outright. The exchanges on which ETFs are traded are heavily regulated, whereas the electronic exchanges that house actual Bitcoin are anonymous and highly vulnerable. This regulatory oversight and the familiar ETF structure are expected to instill confidence in investors who may have hesitated to venture into cryptocurrency's uncharted territories.

Ultimately, it's impossible to know whether this is the right investment for you as an individual as everyone's portfolio and investment needs are different. You may want to talk to a financial or investment advisor to get a better feel for how it could fit into your portfolio. 

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What lies ahead?

As Bitcoin continues its roller-coaster ride in the market, ETFs open up new investor possibilities. The success of these funds will be closely monitored in terms of performance and how accurately they track the price of Bitcoin. 

The first-day trading volumes have been substantial, indicating a keen interest from investors. However, the long-term success of these ETFs will depend on factors like trading volume, price tracking efficiency, and their ability to attract a diverse investor base.

Bottom line

The advent of Bitcoin ETFs signals a shift in how investors perceive and engage with the world's premier cryptocurrency. As these ETFs settle into the market, their performance, tracking accuracy, and ability to cater to a broad audience will be under the spotlight. 

The journey of Bitcoin from the fringes of the financial world to mainstream portfolios might just be beginning, and ETFs are poised to play a pivotal role in this transformative chapter. Investors and enthusiasts alike are watching closely, ready to embrace the next era of digital asset investment.


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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.