The world’s first Bitcoin-linked Exchange Traded Fund (ETF) began trading last month, after being approved by the top Wall Street watchdog.
As the ProShares futures-based Bitcoin ETF made its market debut on the New York Stock Exchange under the ticker BITO, the price of Bitcoin surged past $62,000 to hit fresh all-time price highs.
This created more hype and interest in and demand for the world’s largest cryptocurrency than ever before. But, as I’m being asked frequently since its launch, what does it really all mean for the sector and for the investor?
To my mind, it’s an important milestone in the mass adoption of Bitcoin and other cryptocurrencies. This should be seen as validation of the crypto market by the top financial regulator of the world’s largest economy.
I believe that this future-based ETF adds enormous credibility for the sector and is potentially good for institutional investors, who bring with them essential-for-growth capital, expertise and clout to the market.
However, while this is the case, in my opinion, most individuals should buy Bitcoin themselves directly if they wish to hold it as part of their portfolios.
There are a number of reputable apps available to do this. ETFs and futures are complex and, therefore, this is not the most suitable product for retail investors. Arguably, one of the main issues for the wider buying market is that it might not be clear that the investor in the ETF is not actually buying Bitcoin itself – which might not always be immediately clear.
A Bitcoin futures ETF matches contracts that anticipate the future price of the digital currency, rather than the current values of the asset itself. As such, the prices of the ETF and Bitcoin will not correlate.
This means the price of a futures-based Bitcoin ETF could trade at a higher price in a bull market or, alternatively, at a lower value during a bear market.
All in all, there is a lot to get your head around. I’m of the belief that Bitcoin is now undeniably a mainstream asset class and most investors should consider including crypto assets as part of a diversified portfolio.
Crypto is the inevitable future of money and there are clearly going to be advantages for those investors who have exposure early on – in the same way as those who invested in the major internet, online and tech success stories early on, such as Amazon, Google and Apple, have earned returns.
But retail investors need to understand the differences between ETFs and buying direct.