Bitcoin Future ETF – All you need to know

It seemed inevitable that two of the most popular investment sectors would eventually collide. The biggest possibility for this kind of relationship for cryptocurrency enthusiasts and investors looking to benefit from the rising popularity of exchange-traded funds is the possibility of an ETF that tracks bitcoin (ETFs). However, there have been many challenges in introducing the first bitcoin ETFs.

The world’s most valuable cryptocurrency by market capitalization, bitcoin, is still mostly unregulated, which is the cause of this. The Securities and Exchange Commission (SEC) is hesitant to allow the public sale of an ETF based on the brand-new, largely unproven cryptocurrency market.

Launch of Bitcoin Futures ETF

However, a turning point for the nascent cryptocurrency market occurred on October 19 when the New York Stock Exchange unveiled the first exchange-traded fund (ETF) for Bitcoin futures. People won’t have to purchase Bitcoin to invest in it. Bitcoin was trading at an all-time high of $67,139 on numerous Indian exchanges in 2021(approximately Rs 50,25,433).

Similar to how they can buy and sell stocks, investors can buy and sell Bitcoin ETF shares anytime during market trading hours. The launch of the Bitcoin futures ETF on the New York Stock Exchange has received encouraging feedback from cryptocurrency enthusiasts.

What are Bitcoin Futures?

Bitcoin and Bitcoin futures are not the same. To buy or sell an item at a certain price in the future, you enter into a futures contract. You don’t buy and sell the underlying asset straight away (Bitcoin, in this case).

No matter the asset’s actual price on the agreed-upon day, you are obligated to acquire or sell the asset at that price. If your contract expires and Bitcoin is worth more than what you agreed, you profit as an investor.

Trading in premiums is what is meant by this. If the price of Bitcoin is less than you anticipated, you lose money. Trading at a discount is what this is called. By contributing to this new fund, you are essentially assuming that the value of your ETF shares will increase over time. The main factor influencing your stock’s value is bitcoin.

A wide range of assets, most frequently popular commodities like oil, grain, and coal, are traded using futures. You can invest in a gold futures ETF rather than purchasing gold bars.

Futures contracts are derivatives of bitcoin, not directly guaranteed by the digital currency itself, according to Dana J. Menard, CFP and owner of Minneapolis-based Twin Cities Wealth Strategies. The price of the ETF does not always match the price of Bitcoin, which could lead to confusion.

What is a Bitcoin Futures Exchange Traded Fund (ETF)?

Exchange-traded funds (ETFs) are financial products subject to regulation and can represent a variety of assets. An ETF also monitors the price fluctuations of the underlying asset, enabling investors to profit from the asset’s price trend without actually owning any of the underlying asset’s units.

A type of price-tracking trading contract, bitcoin futures involve two parties agreeing to monitor the price of bitcoin. Both sides concur to buy or sell Bitcoins at a predetermined price later, according to a CoinDesk report. The place where this kind of trading happens is a commodities market.

The Advantages and Disadvantages of Bitcoin Future ETFs

Future ETFs lower the cost and duty of holding commodities, making them simpler to acquire and sell. Additionally, one of the parties to a deal may stand to gain substantial profit margins.

The fact that assets like Bitcoins cannot be housed or traded on larger exchange platforms is a significant drawback of this technology. Furthermore, the agreed-upon asset value for a specific date under a future ETF contract could result in significant losses due to the varying accuracy of different crypto-price trackers.

The company that issued the ETF is obligated to roll over the Bitcoin futures contracts when they expire, which means selling the nearly expired contracts and using the profits to purchase new contracts with a longer expiration date.

Should you Invest in a Bitcoin-Linked ETF?

No more than 5% of your whole portfolio should be allocated to riskier investments, such as cryptocurrencies or specialised exchange-traded funds (ETFs), according to experts. Compared to traditional stock market investments, bitcoin is still relatively new. Thus, it lacks the previous performance that investors might use to forecast future success.

Before purchasing shares in a Bitcoin ETF, cryptocurrency, or any other speculative investment, keep in mind only investing what you can afford to lose. Other financial objectives, such as paying off high-interest debt or saving for retirement, should never be sacrificed in favour of speculative investments.

Although there may be a price difference between Bitcoin and BITO, the ETF won’t protect you from Bitcoin’s ups and downs because it is incredibly unpredictable.

Before rapidly losing half its value over the summer, Bitcoin hit an all-time high of nearly $60,000 in April 2022.

Final Thoughts

If you’re unfamiliar with cryptocurrencies, trying to search for a bitcoin exchange could not be very comforting. Using your brokerage, this ETF makes it simple to increase your portfolio’s exposure to Bitcoin. Even better, if you like, you can keep it in a tax-advantaged account like a Roth IRA or 401(k).

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