One way or the other, you must have stumbled on the news, trending topics, social media, newspaper, and other articulated news outlets talking about the just concluded Bitcoin ETF and ask yourself what really are they. Worry less, this article will cover most of what you need to get a crystal clear understanding of what Bitcoin ETFs are respectively.
Bitcoin ETFs are said to be institutional asset class options for anyone who wants to invest and make a profit from the swinging price movement of Bitcoin without owning the digital asset itself. A very smart Bitcoin Initiative I tell you.
What are ETFs?
ETFs are an acronym for Exchange-traded funds (ETFs), they are investment funds that are traded solely on the stock exchanges, and with quite similar to individual stocks. An ETF serves as an umbrella to hold multiple assets, such as stocks, bonds, or commodities and one of its primary aims is to smartly mirror the underlying performance of these tradable assets respectively.
On the other hand, anyone interested in investing in ETFs offers a unique way to gain exposure to a collection of assets without the need to buy them or own them. Another primary aim of ETFs is that they are designed in such a way to provide investors with exposure to a diversified portfolio of tradable assets, such as stocks, commodities, bonds, and other securities respectively.
How Do the Bitcoin ETFs Work?
Basically, Bitcoin ETFs hold Bitcoin as its primary official asset that offers investors the sole exposure to the unparalleled price movements of Bitcoin without actually owning the cryptocurrency. Interested investors can buy and sell fractional units or shares of the ETF on traditional stock exchanges, similar to how they would trade stocks on the stock market.
What also boosts the confidence of investors is the fact that Bitcoin ETFs are strictly issued by licensed financial institutions that make an actual purchase of Bitcoin assets to back the funds (more like reserves). When you invest in a Bitcoin ETF, the said funds purchase the corresponding amount of Bitcoin, ensuring the ETF's price closely mirrors the actual market price of Bitcoin.
Note: the entire process and procedures, from issuing the ETFs to listing them on the stock exchange are solely subject to regulatory oversight by financial authorities.