advantages and disadvantages of BTC ETF

Advantages

First, the creation of a Bitcoin ETF leads to increased accessibility to cryptocurrency investments. Unlike classic shares traded on exchanges, the purchase and sale of Bitcoin is carried out on specialized crypto exchanges and the unregulated OTC (over-the-counter) market. This state of affairs scares off many institutional and retail investors due to their lack of trust in this kind of trading platforms. In the case of ETFs, investors will have the opportunity to buy BTC without leaving their exchange “comfort zone,” which is generally in line with the global investment trend aimed at growing the passive sector and lowering the entry threshold for the widest possible range of potential investors.

And the more investors there are, the larger volumes of cryptocurrency will be purchased by funds. The result is an increase in the price of the asset.

The second advantage of ETFs is publicity in the provision of data. The regulator controls all aspects related to the issue and circulation of such assets. In turn, this increases the reliability of the entire process in the eyes of the investor.

And finally, we need to mention once again the responsibility for security, which the investor shifts to the custodian, eliminating the need to create his own crypto wallet, store passwords, key phrases, etc.

Now a few words about the disadvantages of ETFs:

The main risk of this type of investment, as you might guess, is a decrease in the value of the fund's securities. In this sense, by investing in a BTC ETF, you will not be able to protect yourself from a fall in the BTC rate

Another, less obvious problem could be potentially high volatility. Imagine: what kind of pressure may arise on stock exchange order books when the largest funds enter the market with billions of dollars in their fortunes. At the same time, I would advise those investors who have already rushed to imagine an unprecedented increase in the value of the main cryptocurrency to imagine the opposite situation: when one or several of the fund’s largest ETFs are going to take profits. For small traders who trade with bots (such as Bitsgap) this can be a good opportunity to make money on volatility

In any case, no matter how this kind of process is organized, it may well cause a large amplitude of price fluctuations or even lead to problems with liquidity on some exchanges.

The next possible problem follows from the previous one: the accumulation of large volumes of BTC in the hands of a limited number of institutional investors leads to monopolization in the management of the entire sphere of cryptocurrencies, which contradicts the very original idea of ​​decentralization.

Well, the last feature that I decided to attribute to the disadvantages of the ETF is the indirect management of the underlying asset, that is, BTC itself. After all, by investing in Bitcoin using an ETF, the investor, de facto, is deprived of the opportunity to independently store the cryptocurrency and carry out transactions.

Perhaps some of you have already heard that BTC ETFs are already trading on the American, Canadian and Australian exchanges. Indeed, at the moment, on the American market you can purchase shares of such crypto-ETFs as The Valkyrie Bitcoin Strategy ETF (BTF), ProShares Bitcoin Strategy ETF (BITO), GLOBAL X Blockchain & Bitcoin Strategy ETF (BITS), VanEck Bitcoin Strategy ETF (XBTF)

You may ask: why then is there such a stir around Blackrock’s application to register its BTC ETF, if there are already other major players on the market?

The thing is that all of the above funds are not spot. This means that they purchase not Bitcoin itself, but BTC futures. An investor who buys a share in such a fund moves even further away from actually owning the cryptocurrency itself.

Therefore, the real revolution could be the SEC’s approval of full-fledged spot Bitcoin ETFs, which will bring cryptocurrency as close as possible to the sphere of publicly accessible and regulated investments.