More such opportunities are on the horizon in the United States, but these items have already garnered a global following. Consider engaging with a financial advisor as you consider investing in digital assets such as cryptocurrency as these products gain traction in the United States.
What Is a Crypto EFT?
An exchange-traded fund (ETF) is a fund-based financial product that trades alongside traditional equities on major stock exchanges. They have significantly more liquidity than mutual funds because of this.
Buying and selling ETF shares is as simple as buying and selling stock, although mutual funds typically have complex trading regulations that limit their liquidity.
An ETF is a fund-based product that consists of a collection of assets. The fund will put its money into a portfolio of securities based on a theme. For example, you could construct a technology ETF, which would consist of assets from and related to high-tech enterprises.
Alternatively, you might invest in an S&P 500 fund, which would hold a portfolio of assets meant to mirror the S& P 500 index.
Any ETF’s performance is determined by the overall performance of its many assets. This return will be more consistent than if you invested in a single asset.
You lose the possibility for massive returns if a single stock goes off, but you also reduce the chances of that one stock losing a lot of money.
A cryptocurrency exchange-traded fund (ETF) is a fund whose value is derived from the cryptocurrency markets. This can refer to one of two things:
It’s possible that the fund will only invest in cryptocurrency. It will be made up entirely of cryptocurrencies such as Bitcoin and Ethereum tokens, with the fund’s worth reflecting the value of the cryptocurrencies it holds.
As an asset class, the fund might invest in cryptocurrencies. This means that the fund may invest directly in cryptocurrencies, but it will also invest in businesses related to the cryptocurrency market. It might, for example, hold equity in cryptocurrency marketplaces or companies that provide crypto wallets and other trading tools.
Alternatively, the fund might invest in cryptocurrency futures and options contracts. The overarching goal will be to reflect cryptocurrency’s worth as an asset while avoiding some of the dangers associated with purchasing certain products.
How Can You Invest in Cryptocurrency ETFs?
ProShares debuted its Bitcoin exchange-traded fund on October 19, the country’s first ETF connected to the $1.1 trillion cryptocurrencies. The fund, which goes under the ticker name BITO, allows investors to gain exposure to Bitcoin without having to buy the notoriously volatile digital currency.
Rather than tracking Bitcoin’s price, the ProShares ETF tracks the price of Bitcoin futures, which are contracts between two parties to buy or sell the cryptocurrency at a predetermined price.
Having BITO in your portfolio will cost you a lot of money. With a 0.95 percent cost ratio, investors will pay ProShares $95 per year for every $10,000 invested in the vehicle. That’s a lot more than the average mutual fund or exchange-traded fund.
According to Morningstar, the asset-weighted average cost ratio of all U.S. open-end mutual funds and ETFs was 0.41 percent in 2020.
BITO can be purchased through online brokerages, just like any other ETF. You’ll need to open a brokerage account with a platform like Robinhood, Fidelity, or E*TRADE if you don’t already have one.
Determine how many shares of BITO you want to buy and at what price you’re comfortable buying once you’ve opened an account. The BITO fund began trading at $40.88 on October 19, as Bitcoin climbed over 4% to over $63,800 later that day.
You can use a market order to buy shares of a mutual fund at the current market price. A limit order, on the other hand, lets you specify the highest price you’re ready to pay for a stock.
You don’t have to go it alone, though. Beyond only purchasing and selling BITO shares, a financial advisor may execute trades on your behalf and provide expert guidance.
Cryptocurrency is well-known for its decentralized nature. There is no central authority in charge of trading. This causes the market to be more unstable and price fluctuates than it would be if it had a single, central trading floor.
A Bitcoin ETF helps to level the playing field. Although the ETF participates in the decentralized crypto market, individual investors now have a central authority to interact with.
This has the potential to boost market liquidity and make cryptocurrencies more accessible to regular investors. It may, for example, allow consumers to invest in bitcoin using their existing investment portfolio, rather than the present approach, which requires investors to learn a completely new trading language.
Although the ProShares fund is the first to be connected to Bitcoin, it is unlikely to be the last. The Grayscale Bitcoin Trust, valued at $40 billion, is being converted into an ETF by Grayscale Investments and the New York Stock Exchange, but federal clearance is required first. Investors would have access to an ETF that invests directly in Bitcoin, not merely futures contracts if the move is approved.