ProShares Bitcoin ETF, or Exchange Traded Fund, was launched on 19th October 2021, and trades under the symbol BITO, which allows retail investors to buy into Bitcoin with a traditional brokerage account, and without actually buying it through a cryptocurrency exchange.
But before we know more about the first Bitcoin ETF, let’s understand the challenges of Bitcoin investment. This specific ETF offers Bitcoin exposure in the form of futures contracts – similar to an asset, such as oil, gold, or euros bought or sold at an agreed price, but delivery and payment could take place subsequently – rather than buying Bitcoin itself. Other ETFs mimic linked indices where exposure is to a basket of securities forming part of the linked index, rather than just a single asset.
The risks associated with Bitcoin are:
- Fluctuating prices, besides skyrocketing prices per unit.
- Liquidity risk owing to limited supply and/or trade settlement.
- Market hours risk as it trades 24/7/365.
- Losing your private key or password of digital wallet services.
- Network risk viz transaction authentication taking time or cancellation.
- System risk such as when a customer is unable to place orders or there is a delay.
- Bankruptcy risk from a change in the external environment, when the sustainability of a business is doubtful.
The First Bitcoin ETF
The ProShares Bitcoin ETF grew assets under management to US$ 1 billion in no time, thereby becoming the fastest ETF to reach that mark. It would be interesting to understand the price difference between Bitcoin ETF and standalone Bitcoin on the day Bitcoin ETF trading began on New York Stock Exchange (NYSE), which invests in Bitcoin futures contracts traded on Chicago Mercantile Exchange.
The price of ProShare ETF (BITO) touched an intraday high of US$ 42.15, which is for a unit of ETF – not for Bitcoin, whereas Bitcoin price high was US$ 64,776.26, on the ETF launch day. The Bitcoin futures ETF has caught the frenzy of the investor as it crossed the trading volume of US$ 1 billion on the launch day, with 24 million units exchanging hands. Therefore, it’s easy to trade in a Bitcoin ETF where the price is in the affordable range as compared to the unit price of Bitcoin. It would be pertinent to note that the risk is not getting diversified, as exposure continues to be on the underlying asset viz—Bitcoin, rather than a basket of assets.
What To Know Before Buying The Bitcoin ETF
Prospective investors need to consider certain factors before taking exposure to Bitcoin’s future ETFs. Though correlation exists between bitcoin prices and Bitcoin future ETFs, yet the ETF may not mirror the price of Bitcoin as it tracks the price of futures contracts. The ownership cost of ETFs is higher than individual assets. Still, investors are willing to pay relatively high management fees (0.95%) compared to other ETFs (0.41%) – due to institutional liquidity, custody, and execution compared with managing cryptocurrency on their own. The higher fees could fall with the likely introduction of competitors’ products, such as VanEck’s Bitcoin Strategy ETF (0.65%).
Numerous investors have taken the Mutual Fund route to invest in equities instead of directly investing in equity markets. Fluctuating private cryptocurrency prices deter investors from investing in cryptocurrencies. Further, investors are always in a dilemma about choosing the coin to buy or trade.
Investing In Low-Risk Crypto Baskets
While the Bitcoin ETF works on the futures contracts of Bitcoin, you can invest in thematic crypto baskets based on different ideas on Mudrex. Mudrex Coin sets are expert-curated crypto baskets for long-term returns. These Coin Sets include DeFi, NFT, Top Crypto Coins and more. Invest in Coin Sets and many other Mudrex products with total security and an extremely easy process to generate long term returns.