The U.S. securities regulator granted approval for the inaugural U.S.-listed exchange-traded funds (ETFs) designed to monitor bitcoin. This decision marks a pivotal moment for the world’s largest cryptocurrency and the wider crypto industry.
The Securities and Exchange Commission has greenlit 11 applications, including those from prominent firms like BlackRock (BLK.N), Ark Investments/21Shares (ABTC.S), Fidelity, Invesco (IVZ.N), and VanEck. This approval comes despite some officials and investor advocates issuing warnings about potential risks associated with these products.
After a decade in development, these ETFs represent a revolutionary development for bitcoin. They enable investors to gain exposure to the world’s largest cryptocurrency without holding it directly. This approval serves as a significant catalyst for the crypto industry, offering a substantial boost at a time when it has faced challenges and controversies.
Bitcoin experienced a 3% increase, reaching $47,300. Over the past few months, the cryptocurrency has witnessed a remarkable surge of over 70%, driven by the anticipation of an ETF, reaching its highest level since March 2022.
How do bitcoin ETFs work?
Bitcoin ETFs operate similarly to traditional exchange-traded funds. The process involves an asset management company purchasing and securely storing the underlying bitcoin with a custodian. By issuing shares to its fund, investors gain access to the cryptocurrency held within the fund.
To make it even simpler, when you invest in a Bitcoin ETF, you’re essentially buying shares in a pool of bitcoin. The creation of new ETF shares matches the demand, and when you sell your shares, they are redeemed, adjusting the total number of ETF shares in circulation.
What’s the difference between a bitcoin futures ETF and a spot bitcoin ETF?
The primary distinction lies in the underlying assets:
- Bitcoin Futures ETF: Invests in futures contracts based on the expected future price of bitcoin, allowing speculation without holding the actual cryptocurrency.
- Spot Bitcoin ETF: Invests directly in bitcoin, correlating its value directly with the market price of the cryptocurrency.
ETF shares and bitcoin prices
The value of a Bitcoin ETF’s shares directly reflects the performance of bitcoin. As the price of bitcoin moves, the value of the ETF shares adjusts accordingly. Market makers play a crucial role in maintaining this balance, actively buying and selling to ensure synchronization with bitcoin prices.
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