Cryptocurrency market is rapidly growing opening up new opportunities for institutional and private investors all over the world. Bitcoin futures approval and launch on traditional stock exchanges in December 2017 was the beginning of a new development stage of cryptocurrency market and paved the way for potential bitcoin ETFs.

A regular ETF and bitcoin ETF

ETF is short for an exchange-traded fund and stands for a type of investment fund that tracks the index of an underlying asset, such as gold, bonds, oil futures, etc. ETF divides the ownership into shares (the fund buys the asset, investors buy shares) which looks similar to mutual funds but in fact it is quite different as unlike mutual funds, ETFs are traded on exchanges similarly to common stocks and are owned in whole numbers unlike mutual funds that can be purchased in parts.

There is no big difference between a cryptocurrency ETF and a regular ETF. A bitcoin ETF would have bitcoin as an underlying asset and mean purchase of an underlying amount of actual bitcoin by the fund and allocation of this amount into shares, distributed to shareholders.

Buying actual bitcoin vs bitcoin ETF

As purchasing a bitcoin ETF is similar to purchasing any other stock on the market, bitcoin ETF investors would acquire regulated investment vehicles that could be traded on exchanges. They wouldn’t need to buy actual bitcoin as the fund would do that for them and wouldn’t face such technical challenges like maintaining a wallet and keeping it safe. Though entry barriers for bitcoin ETFs are quite high and they will limit participation of retail investors.

The benefits of an ETF for bitcoin

The main advantage of bitcoin ETF is its ease of purchasing, paving the way to crypto for new investors and allowing cryptocurrencies to become a part of the mainstream investor’s portfolio. Bitcoin-based ETF trading may provide additional protection to investors compared to trading in unregulated bitcoin sport markets and would further legitimize the flagship cryptocurrency. Moreover, the approval of a publicly traded bitcoin ETF can boost the price of Bitcoin as it happened to gold when ETF market opened up gold investing to private investors in the early 2000s.

Proposed bitcoin ETFs

The US Securities and Exchange Commission (SEC) has already received several Bitcoin ETF proposals that use bitcoin as the underlying asset. It began formally considering such proposals in March 2018.

Last month the SEC issued rejections on 9 bitcoin ETF proposals from ProShares, Direxion and GraniteShares following its rejection on Winklevosses’ second attempt to list a bitcoin ETF (Cameron and Tyler Winklevoss started working on a proposed bitcoin ETF about 5 years ago). The main reason for rejection is SEC’s concern regarding market manipulation and remaining unregulated bitcoin underlying markets.

Currently CBOE ETF proposal is under consideration and the SEC is expected to take its final decision on September 30, 2018, although the final deadline can be postponed till March 2019.

While bitcoin ETF launch is pending it is being one of the hottest crypto-related issues up to date and the news concerning its approval influence bitcoin price and the market in general.

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