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What exactly is a Bitcoin exchange-traded fund (ETF)?


At the essence of it, a Bitcoin exchange-traded fund (ETF) is an exchange-trade composed of Bitcoin or assets related to Bitcoin’s price.

Bitcoin ETFs are pools of Bitcoin related assets offered on traditional exchanges by brokerages to be traded as exchange-traded funds (ETFs). The intent behind these ETFs is to give retail investors and investors not comfortable investing in cryptocurrencies access to them without actually owning them.

With a Bitcoin ETF, it’s important to note that:

  • Investing in Bitcoin exchange-traded funds cuts complex storage and security issues for cryptocurrency investors.
  • Cryptocurrency fans and investors are still interested in an exchange-traded fund composed of Bitcoin, as opposed to a derivative.
  • Theoretically, Bitcoin is purchased by the company, scrutinised, and sold or traded on an exchange.

Objectives of Bitcoin exchange-traded funds

By the choice of the investor, Bitcoin exchange-traded funds are designed to allow more people to invest in Bitcoin without the necessary expenses and troubles of buying them. They eliminate the need for security procedures and excessive funds while providing a familiar investment type.

This investment is high risk and it’s only wise to consult with a professional advisor before purchasing one.

Reasons for Bitcoin’s volatility

Bitcoin became popular and started its rise around the year 2010 when it rose rapidly in a short space of time. Since then, it’s been increasing by tens of thousands of dollars, sometimes fluctuating in price within days. Listed below are several factors constituting volatility in Bitcoin:

Investors and users actions

Prominent investors and wealthy users tend to hold their Bitcoin, preventing those with fewer or no assets at all privilege to gain exposure. This happens when the demand for cryptocurrency, Bitcoin increases as supply becomes unavoidably limited.

Media hype

As soon as Proshere’s introduction of its Bitcoin exchange-traded fund (ETF) strategy was announced, Bitcoin’s price skyrocketed over the next few weeks. Investors and users alike jumped at the chance to gain exposure to a cryptocurrency on an official exchange. This caused a price increase, with Bitcoin tagging an all-time higher, boasting a price tag of more than $69,000 USD. Once the hype faded off and investors realized the exchange-traded funds were linked to Bitcoin through futures contracts traded on the commodities market. Prices drastically dropped back down to around $50,000 USD.

The factor of demand and supply

Generally, demand and supply is a major factor that influences the prices and availability of items in the marketplace. The worth of Bitcoin is basically affected by the amount of coins in circulation and how many people are willing to pay. The closer the circulating supply reaches its mark, the higher prices.

Government views, rules, and regulation

Government views of cryptocurrency can affect Bitcoin’s price. The internal revenue service (IRS) considers Bitcoin a convertible virtual currency because you can convert it to cash. They also consider Bitcoin a capital asset if it is used as an investment instrument.

Bitcoin ETFs in Australia

Quite recently in 2021, the Australian Securities and Investment Commission (ASIC) provided some guidance on ETFs linked to crypto assets. ASIC’s Chair Mr, Lonjo stated that Bitcoin ETFs are at least financial products and are traded on a licensed exchange, so there will be some protections there but for the most part, for now at least, investors and wealthy users are on their own.

Three crypto ETFs also opened up to investors in Australia with a slow start being attributed to an eighteen month low for Bitcoin. Exchange-traded funds Securities head of distribution Kanish Chugh stated that trading had been silent and the extreme volatility in crypto has caused potential investors interested in crypto to sit on the side-lines patiently waiting for calm. Chugh noted that the region might prove a challenging market for a crypto ETF launch.

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