Before July, one could be forgiven for being confused by the prospect of a Bitcoin ETF being introduced into the cryptocurrency ecosystem. Almost three months on, however, such ETFs have become synonymous with the term Bitcoin. To claim naivety of the ETF proposals at this stage risks entirely misinterpreting current market conditions. This article aims to ensure market participants are completely aware of the facts thus far including what exactly a Bitcoin ETF entails, when they are likely to be implemented and how they will impact the overall market.
ETFs Defined
Exchange-traded funds, commonly known as ETFs, are a traditional investment vehicle offered on all major stock exchanges around the globe. The most notorious example of such a fund is the well-regarded S&P 500 on the New York Stock Exchange (NYSE). They allow exposure to an underlying asset or basket of assets offered in the form of a security that is proportionally represented by the funds’ shares. Most importantly, they allow exposure to a market without needing to physically hold or store the underlying asset, which is left up to the fund. For many years now, ETFs have become one of the key mainstream methods for passive investment by the masses in mainstream markets, as they are commonly associated with lower investment risks than individual stocks.
Indeed, as ETFs allow an individual to buy a basket of multiple assets, they mitigate strong price swings which individual stocks often suffer from, especially in the incredibly volatile cryptocurrency market. Any losses from assets which do not meet up to their promise are counterbalanced with assets which have performed particularly well and the growth of the overall industry during that period. Driving up the funds share price over time. The notorious investment tycoon Warren Buffett once proved the power of ETFs with a successful bet that the S&P 500 would outperform a collection of well-regarded Wall Street hedge funds over the period of a decade. His victory truly displayed to the masses the power of such funds.
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