What are ETFs?

Before discussing cryptocurrency ETFs, we must first understand what ETFs are. ETFs are called Exchange Traded Funds, which translates to exchange-traded funds. ETFs are essentially open-ended securities investment funds, which have the following significant advantages and characteristics:

  1. Risk diversification: ETFs contain a variety of assets, which can diversify investment risks and reduce the risk of individual asset fluctuations.

  2. Flexibility: It can be traded directly on the stock exchange and has high liquidity, making investment more flexible and convenient.

  3. Low threshold: The investment threshold is low, and transaction and management fees are also low, making it very suitable for individual investors.

Simply put, ETFs make operations easier for users as they do not need to apply and redeem through fund companies. Therefore, all fee costs are lower, providing individual investors with a more convenient investment channel.

If we distinguish by investment targets, the common ETFs in the Taiwan market include:

  • Equity ETFs: ETFs that track stock indexes and sectors, such as Yuanta Taiwan 50, Yuanta FTSE Real Estate, etc.

  • Bond ETFs: ETFs that track a bond index, such as the Yuanta 15+ Year Grade A Corporate Bond ETF.

  • Commodity ETFs: Track commodity indices, such as gold ETFs, silver ETFs, etc.

  • Currency ETF: An ETF that tracks the exchange rate movements of various countries’ currencies, such as the Yuanta USD Currency ETF.

ETFs that track cryptocurrency price changes are the focus of this article.

Cryptocurrencies, Bitcoin and Ethereum ETFs?

Cryptocurrency ETFs mainly use "single currency" or "multiple cryptocurrency assets" as investment portfolios.

Cryptocurrency ETFs allow investors to purchase fund shares with the goal of gaining exposure to the value of a specified cryptocurrency or tracking a cryptocurrency market index.

However, according to a report by cryptocurrency data website CoinGecko, the world's cryptocurrency ETFs are currently mainly concentrated in Bitcoin and Ethereum.

These cryptocurrency ETFs allow investors to track and invest funds into BTC or ETH, giving investors a way to gain cryptocurrency exposure without having to directly purchase and store cryptocurrencies.

Cryptocurrency ETF Advantages

We have mentioned the benefits of ETFs to overall investors, but cryptocurrency ETFs are a relatively new field. Compared with investors who directly hold cryptocurrencies, what are the benefits? The main benefits are as follows:

  1. Operated by a professional fund management team: Investors do not need to worry about the custody risks of crypto assets.

  2. Lower technical threshold: Investors do not need to learn how to operate cryptocurrency wallets.

  3. Time-saving and convenient: Investing in cryptocurrency ETFs can make transactions simple and efficient, suitable for any type of investor.

  4. More compliant: ETFs are subject to strict supervision and legal protection, with controllable risks and compliant operations.

  5. Diversify asset risks: In addition to the common single Bitcoin or Ethereum ETFs, there is also the concept of packaging multiple cryptocurrencies in the market, allowing investors to achieve a diversified investment portfolio.

Cryptocurrency ETF Disadvantages and Risks

Compared with common ETFs, cryptocurrency ETFs are still in the early stages of development, so there are certain risks and disadvantages. For example:

  • Volatility: Compared with other common ETF investment products, the volatility of cryptocurrency assets is more severe.

  • Security: Cryptocurrency hacking incidents are heard from time to time. If these platforms are hacked or have problems, if there are problems with related storage platforms and services, asset losses will occur.

The most important point is that ETFs violate decentralization. ETFs themselves are a product of centralization. If you use ETFs for investment, investors will not be able to transfer freely like on-chain operations. At the same time, your assets will be held by the fund. There is a popular saying in the currency circle:

「Not your Keys，Not your Coin」

If the vast majority of people use ETFs to invest in cryptocurrencies, doesn’t that go against the essence of the birth of cryptocurrency?

Why is the approval of the US Bitcoin spot ETF so important?

Why is the US Bitcoin ETF so anticipated? The main reason is the importance of the US stock market.

Data shows that the U.S. stock market accounts for nearly 42% of the global total market value. Compared with other countries that have launched cryptocurrency ETFs, such as Canada, Brazil, and Europe, its market value is very different.

If the United States, a country with the largest population and the strongest economy, launches a Bitcoin ETF, it will have a significant positive impact on the global cryptocurrency market, and its influence will not be limited to the United States.

In 2021, the United States has approved Bitcoin ETF futures products, making the market very eagerly expect that spot ETFs will also be allowed to pass, but the spot ETF applications submitted by various institutions continue to be rejected by the SEC, which makes everyone a little disappointed.

However, according to the latest news, the "Bitcoin and Ethereum Composite Futures ETF" recently launched by asset management company Valkyrie has been officially approved by the SEC and officially started trading on Nasdaq on October 3. To some extent, this may mean that Ethereum futures ETFs will have the opportunity to be reviewed and approved one after another, and also increase the SEC's success rate in releasing Bitcoin spot ETFs.

What is the difference between spot and futures ETFs?

As mentioned above, the US Bitcoin futures ETF has been approved, but why do people expect the spot ETF to be approved? Here we take "Bitcoin" as an example:

Bitcoin Spot ETF

Bitcoin spot ETF is a product issued by a fund company that actually holds Bitcoin.

When investors buy Bitcoin spot ETFs, it is equivalent to indirectly holding Bitcoin through ETF funds. The fund company needs to use the purchased funds to buy an equivalent amount of Bitcoin as a cover to support the issuance of ETF contributions.

Bitcoin Futures ETF

In contrast, Bitcoin ETF futures do not require the purchase of any physical Bitcoin. It uses Bitcoin futures contracts to simulate Bitcoin prices. Futures ETFs will not affect the price and quantity of Bitcoin in the spot market. It is a financial derivative designed to track the value of Bitcoin.

The core difference between the two is that spot ETFs will have an impact on the actual market supply and demand of Bitcoin, while futures ETFs are relatively low.

Therefore, the launch of a Bitcoin spot ETF will promote the development of Bitcoin as a new asset class and will have a greater chance of pushing up its price.

This is why cryptocurrency investors have been looking forward to the US SEC's accelerated approval of Bitcoin's spot ETF. Its impact on Bitcoin itself and the entire cryptocurrency market is more urgent.

As mentioned in the article above, the SEC has only approved Bitcoin futures ETFs and rejected all spot ETF applications from institutions. But according to recent developments, the hope of Bitcoin spot ETFs getting final approval is getting higher and higher. Its launch will be a great boon to the crypto market.

So far, there are no cryptocurrency ETF products in Taiwan. Taiwanese users still need to make related investments through actual buying and selling of cryptocurrencies. The following introduces the more popular cryptocurrency ETF products currently available overseas.

ProShares Bitcoin Strategy ETF

The first Bitcoin futures ETF launched in the United States

  • Assets under management: $1.09 billion

  • Fee rate: 0.95%

  • Code: BITO

Amplify Transformational Data Sharing ETF

  • Assets under management: Approximately $500 million

  • Fee rate: 0.75%

  • Codename: BLOK

Bitwise Crypto Industry Innovators ETF

  • Assets under management: Approximately $80 million

  • Fee: 0.85%

  • Code: BITQ

Global X Blockchain & Bitcoin Strategy ETF

  • Assets under management: Approximately $11 million

  • Fee rate: 0.65%

  • Codename: BITS

First Trust Indxx Innovative Transaction & Process ETF

  • Assets under management: Approximately $107 million

  • Fee rate: 0.65%

  • Code: LEGR

Companies with potential to be traded via US cash ETFs

In addition to the cryptocurrency ETFs that have already been launched, the current market focus is on who can get Bitcoin spot ETFs in the United States. The following are related companies with potential in the market.

BlackRock

BlackRock is the world's largest asset management company, with total assets under management exceeding US$9 trillion as of the second quarter of this year.

In addition, according to BlackRock’s past record of many battles with the SEC, a total of 575 ETFs have been approved, with only one rejection in 2014. It has a very high winning rate and is currently the most promising company to pass the Bitcoin spot ETF application.

Wisdom Tree

The New York-based asset management company began applying for a Bitcoin spot ETF in 2021, but was repeatedly rejected. It recently applied again after BlackRock submitted its ETF application.

ARK Invest

An investment company led by well-known cryptocurrency investor Cathie Wood (commonly known as Cathie Wood), who is a Bitcoin believer, and whose investments include CoinBase, GrayScale, etc.

Ark Invest submitted an application for the Ark 21 Shares ETF in June 2021, which was subsequently rejected, and is currently in the process of applying for a third time after amending its documents.

Grayscale

Grayscale is a cryptocurrency investment fund management company based in New York and a traditional financial institution that entered the currency market early on.

However, Grayscale's product GBTC, which is launched for Bitcoin, is a type of trust, not an ETF, so Grayscale plans to apply to convert its BTC trust into a Bitcoin spot ETF.

If the application is successful, Grayscale will be able to charge lower management fees and it will be easier to move funds in and out.

in conclusion

As of October, the U.S. SEC has not approved any application for a Bitcoin spot ETF and has continued to postpone the approval process.

However, according to the recently postponed information, the SEC did not completely reject the application, but began to seek comments and opinions from relevant parties. Coupled with the recent approval of the Ethereum futures ETF and BlackRock’s application, many people believe that the day for the approval of the Bitcoin spot ETF is getting closer and closer, and it is expected to be officially launched this year or next year.

As mentioned earlier in the article, the U.S. stock market accounts for about 40% of the global share. If the U.S. Bitcoin spot ETF is officially passed, it will have the opportunity to have a significant impact on the existing cryptocurrency market.

#ETH #bnbgreenfield #bnbburn #ftx #uniswap

【Disclaimer】The market is risky, so be cautious when investing. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Investing based on this information is at your own risk.