Last Sunday, October 18, it was confirmed that the United States Securities and Exchange Commission (SEC) would not prevent the very first Bitcoin-based ETF from starting trading. This is an extremely important announcement for crypto investors and likely a turning point in terms of the global and traditional acceptance of cryptoassets as an asset class. Let’s take a look at what an ETF actually is, why this is great news for crypto investors, and what effects this news could have on the price of Bitcoin.
What is an ETF?
An Exchange Traded Fund or ETF is a type of investment fund that tracks the price of another asset or basket of assets and can be traded on a stock exchange. If this still sounds like finance nerd talk to you, that’s because it is. So let’s use an example to put all of this in context.
The SPDR S&P 500 ETF is the largest ETF in the world. It tracks an index called Standard & Poor’s 500, which includes 500 of the major publicly traded companies in the United States.
The S&P 500 Index is considered one of the best indicators of the performance of large-cap companies in the United States. Now, if you were to decide to take “US large cap companies” as the basis of your investment strategy, it would probably be a full-time job to track the factors that determine the stock prices of these 500 different companies. This is where ETFs come in. Instead, you can simply invest in the SPDR S & P500 ETF and gain exposure to this entire market segment with one simple investment.
The plot thickens in the case of a futures ETF, which is exactly the kind of ETF Proshares managed to get through the SEC last weekend. In short, a futures ETF allows investors to “bet” on the price movements of another asset without exposing themselves to any of the risks that might be associated with owning the underlying asset.
What does this mean for bitcoin?
A Bitcoin ETF offers many fringe benefits, but all the rest are pale on one overriding fact. A Bitcoin ETF offers large institutions and high net worth individuals the opportunity to gain exposure to Bitcoin on their own terms and in a highly regulated environment.
The point is, there is already massive institutional interest in Bitcoin. Research indicates that even a relatively low investment weight of 1% to 5% in your investment portfolio can significantly improve the overall performance of that portfolio. This can mainly be attributed to the fact that Bitcoin is largely uncorrelated to other asset classes, so its returns can offset the poor performance of more traditional assets.
The Grayscale Bitcoin Trust, perhaps the primary vehicle for institutional investors looking to add Bitcoin to their large wallets, currently holds over 654,000 Bitcoins. That’s 3.47% of the total supply in circulation. Trusts like this are the most popular financial instruments used by institutions looking to gain exposure to Bitcoin, but they present many challenges. Grayscale investors, for example, can only sell trust shares after holding them for 6 months. By entirely bypassing concerns such as the custody and safety of the underlying asset, a futures ETF offers whale-sized investors a simpler and less risky route to major Bitcoin investments.
What does a bitcoin ETF mean to me?
If you’re not an institution or someone who owns a mega-yacht and an exotic big cat collection, should you even worry about getting a Bitcoin ETF approved? Historical data says yes. The table below shows how the price of Bitcoin has reacted in the 12 months leading up to other major launches in the Bitcoin investment space.
12 months before the launch of Bitcoin Futures by CME and Coinbase’s direct listing, the price of Bitcoin skyrocketed. In both of these cases, however, we saw a marked decline after launch. However, many investors do not believe this will be the case with the approval of Proshares’ Bitcoin ETF.
Unlike CME’s futures and Coinbase’s direct listing, this is only the first approval of nine other Bitcoin ETFs on offer, all of which are slated to launch before the end of 2021. Rather than being one A unique event in the history of Bitcoin, this is just the beginning of a series of events intended to change the relationship of big money with Bitcoin.
Additionally, institutions typically invest and change their portfolios on a quarterly basis. This means that the first time that we will likely see significant volumes of trading in these new ETFs is in January 2022. So it is unlikely that this or any of the ETFs launched in 2021 will cause massive changes in the price of the Bitcoin in 2021.
This is exciting news for retail investors looking to get involved in the current Bitcoin rally, which just saw Bitcoin hit its highest weekly close on record. Now is a fantastic time to get into the Bitcoin action with Revix, which is doing everything possible to ensure that its users are getting the most out of this Bitcoin price rally. Revix, a Cape Town-based crypto investment platform, operates a no purchase costs promotion on Bitcoin between October 15 and 21. Remember, it’s not too late to be early!
Remember that with Revix, you can still refer a friend and get rewarded! If you refer one or more people using your referral code, you receive Revix rewards to the value of R300 by reference.
Revix brings simplicity, confidence, and great customer service when investing in cryptocurrencies. Its easy to use online platform allows anyone to securely own the world’s best cryptocurrencies with just a few clicks. Revix guides new customers through the sign-up process until their first deposit and their first investment. Once configured, most customers manage their own portfolio but can access support from the Revix team at any time.
Remember that cryptocurrencies are high risk investments. You should not invest more than what you can afford to lose, and before investing, please consider your level of experience, your investment goals and seek independent financial advice if necessary.
This article is intended for informational purposes only. Opinions expressed are opinions and not facts and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell a cryptocurrency.
To learn more, visit www.revix.com.