Everyone is talking about #BTC ETF but do you actually know what is #etf and how it works? Well in this article we will learn how ETF ( Exchange transfer funds) work.
A spot Bitcoin ETF is a type of Bitcoin ETF that aims to directly hold the underlying Bitcoin asset in its portfolio. It allows investors to gain exposure to the actual Bitcoin market.
Here's how a spot Bitcoin ETF could potentially work:
1. Creation
An asset management company creates a spot Bitcoin ETF by purchasing Bitcoin from various sources, such as exchanges or over-the-counter (OTC) markets.
2. Custody
The Bitcoin acquired by the ETF is securely held and stored with a regulated custodian. The custodian maintains the private keys and ensures the safekeeping of the assets.
3. Shares
The Bitcoin holdings are divided into shares, which represent ownership in the underlying Bitcoin. These shares can be bought and sold on regulated exchanges.
4. Trading
Investors can trade the shares of the spot Bitcoin ETF on stock exchanges throughout the trading day, similar to other exchange-traded products.
5. NAV and Tracking
The value of the spot Bitcoin ETF is determined by the net asset value, which is calculated based on the current market price of the Bitcoin holdings. The ETF aims to closely track the price movement of Bitcoin, so changes in the Bitcoin price should be reflected in the ETF's price.
6. Arbitrage
Authorized participants can create or redeem shares of the spot Bitcoin ETF. They can do this by transacting with the ETF directly or through designated market makers. This process helps in maintaining the ETF's price in line with its Net Asset Value.
Please note that the process and details of a spot Bitcoin ETF can vary based on regulatory requirements, fund structure, and other factors specific to the particular ETF.
