Almost everyone is financially aware now as more people explore ways to invest their hard-earned money to multiply their holdings. Crypto investment has taken a central position in driving this evolutionary mindset, owing to its decentralized and secure nature. But, handling cryptocurrencies has been seen as a challenging endeavor for the common public for a long time, and that’s what crypto ETF schemes aim to solve. Observing how the latest advancements in the industry put Bitcoin futures ETF solutions in the spotlight, we might not be long away from seeing your friendly neighbor holding a bunch of cryptos indirectly.
Come on! Let’s jump into the specifics!
Table of Contents
- What’s Actually Happening with Bitcoin ETF Now?
- What is Actually a Crypto ETF?
- Different Types of Cryptocurrency ETFs
- Why are Crypto ETFs a Better Investment Option?
- Analyzing the Working of a Bitcoin Future ETF Contract
- What Does These Advancements Mean from a Business Perspective?
- Conclusion
What’s Actually Happening with Bitcoin ETF Now?
Recently, the global investment firm BlackRock’s Bitcoin ETF had been listed on the Depositary Trust and Clearing Corporation (DTCC). This is being seen as a step for the asset to get closer to gaining approval from the United States Security and Exchange Commission (SEC).
Once the news settled in the crypto space, coin prices started surging higher and higher, resulting in the market shifting to new heights. It is to be noted that several firms have applied for their own versions of crypto ETF, and an official approval for BlackRock means a wave of crypto and Bitcoin future ETF is set to occur soon.
Applications to the SEC include spot Bitcoin and Ether ETF from renowned investment corporations, including Grayscale Investments, ARK Investment, Fidelity, and Valkyrie. Unveiling this class of crypto assets could open up opportunities for retail investors to have a taste of crypto investments without actually having to buy and hold cryptocurrencies.
What is Actually a Crypto ETF?
A crypto ETF (Exchange-Traded Fund) is a financial instrument that lets people invest in cryptocurrencies without actually owning them.
- Currently, ETFs related to Bitcoin and Ether have attracted quite a lot of investment firms, although none exist officially.
- With future prospects promising enough, crypto ETF is set to accelerate crypto adoption in a different sense.
- While currently buzzing crypto ETF applications have been put around by investment firms, it is not necessarily an eligibility factor.
- Corporations can apply for crypto ETF if they hold a substantial volume of cryptocurrencies, irrespective of being giants in industries like software products or automobile manufacturing.
Different Types of Cryptocurrency ETFs
Cryptocurrency ETFs come in different forms based on various factors that make them unique. Investors planning to be involved in crypto ETFs can easily tap into one of these without encountering all the complex elements associated with conventional cryptocurrency investments. Crypto exchange-traded funds can be divided into three types, which we will see in the following subsections.
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Crypto-backed ETFs
Crypto-backed ETFs directly represent a cryptocurrency, such as Bitcoin, which the ETF manager buys and holds. These contracts make it easier for small-scale investors to invest in cryptos without hardships. They can either support a single coin or multiple coins, which determines how diverse the investment is and how profitable the outcomes are.
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Crypto Derivative-backed ETFs
Crypto derivative-backed ETFs represent future and option contracts representing cryptocurrencies. These ETFs have existed since 2021, and most of them represent Bitcoin future ETF contracts for futures traded in the Chicago Mercantile Exchange. This type of ETF is more riskier, as price movements reflected are manifold compared to those directly encountered by crypto-backed ETFs.
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Crypto Investment Stock ETFs
Crypto investment stock ETF is the low-risk type among the three, as it represents stock shares of companies investing in cryptocurrencies. These can also be called Blockchain ETFs if the companies involved invest in using blockchain technology for their internal operations or products. Under these ETFs, four types exist, namely:
- ETFs that represent stocks of companies holding cryptocurrencies
- ETFs that represent crypto mining firms and cryptocurrency exchanges
- ETFs that represent financial firms that manage cryptocurrency transactions
- ETFs that represent technological companies that build infrastructure for the crypto space
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Why are Crypto ETFs a Better Investment Option?
Crypto ETFs, such as Bitcoin futures ETFs, are becoming increasingly popular among today’s retail investors as they offer a plethora of benefits. Some of them make these ETFs very favorable instruments for investments as the future leans toward cryptocurrencies.
- Crypto ETF allows people to involve themselves in cryptocurrency investments without too many additional charges. In the usual case, owning cryptocurrency personally may incur many expenses like wallet custodial charges, physical wallet costs, and blockchain transaction charges. Holding ETFs, though, relieves a common human of these hassles.
- Cryptocurrency-based ETFs enable individuals to invest in cryptocurrency as the entry barrier is significantly lower than conventional investments. While cryptocurrencies may cost hundreds to thousands of dollars per coin, ETF contracts representing them will only cost tens to hundreds of dollars, making them highly affordable.
- Holding these ETFs drives people away from all the difficulties they encounter while holding cryptocurrencies. Concerns about losing private keys, understanding extensive crypto jargon, and rapidly looking out for market trends are some of them. Crypto ETFs ease them off all these worries, making investments very smooth.
- While cryptocurrencies come with the risks of hacking or smart contract manipulation, cryptocurrency ETFs have none of them. This is because they are only contracts representing the prices of cryptocurrencies and do not involve any kind of blockchain program.
- Through crypto ETFs, diversification of investments becomes easier in the decentralized space. This is due to the fact that a single ETF can represent the prices of multiple cryptocurrencies, lowering the costs involved in investing in individual coins.
Analyzing the Working of a Bitcoin Future ETF Contract
With crypto ETF contracts slated to become a reality soon, we can derive the working of a Bitcoin future ETF based on how blockchain-based exchange-traded funds work.
- The custodian (an exchange or an ETF platform) collects funds from investors.
- While dealing with Bitcoin future ETF contracts, the custodian buys the corresponding trading positions.
- Authorized participants (people who actually own Bitcoins) distribute future contracts to ETF platforms. This enables retail investors to become crypto holders without actually holding any.
- The Bitcoin future ETF will be approved by regulators based on numerous aspects.
- The crypto ETF contracts will be listed on the stock exchange after gaining legal approval.
- These ETFs can be traded by the provider that might offer them profits or losses based on market trends.
- The actual profit will be distributed by the ETF provider after taking an amount as platform fees.
What Does These Advancements Mean from a Business Perspective?
The possible green signal for Bitcoin futures ETFs and other cryptocurrency ETFs has offered a plethora of opportunities for those looking to enter the crypto market. While launching a specialized platform for crypto ETFs might be one for the future, tapping into the current market sentiments to launch tokens and exchanges can be a great deal.
Both crypto tokens and exchange platforms offer environments for community building and collaboration through active trades. This can be a viable way for entrepreneurs and large-scale business owners to enter the crypto space without a fuss. Our experts make things easier with professional-grade services to offer the best applications ever.
Conclusion
We have seen how crypto ETFs have become a hot prospect driving the market forward and the buzz around several Bitcoin futures ETFs coming true. While specialized business models based on cryptocurrency ETFs might be realized in the coming months, launching a crypto token or an exchange platform can be done much sooner. It will open up an ocean of opportunities as many new investors embrace cryptocurrencies. As a leading provider of services related to crypto development and crypto exchange development, Blockchain App Factory stays at the forefront to fulfill your unique business needs at fascinating quality. Get in touch with our professionals today to start developing your new venture!
