Bitcoin awareness is on the rise. With record prices so far in 2021 and announcements of significant new corporate investment in the cryptocurrency, interest in the coin is at a new peak.
24x7x365 pricing, high transaction speeds, low correlation to traditional investments and now access through exchange traded funds (ETFs), all make bitcoin an attractive investment opportunity. Investors open to higher risk have the potential to build efficient, diversified portfolios with bitcoin. And as mentioned, with the debut of new bitcoin ETFs, like Evolve’s own EBIT fund, it’s easier than ever for investors to add bitcoin to their holdings in a straightforward, convenient investment vehicle.
How a Bitcoin ETF Changes the Game
Bitcoin ETFs provide the advantage of simplicity by avoiding the hassles of setting up and managing individual digital wallets as a means of bitcoin ownership for individual investors. A Bitcoin ETF also gives investors a more direct way to invest in the cryptocurrency than options like closed-end trusts that have, to this point, been available as a way to gain Bitcoin exposure.
The bitcoin ETF directly purchases actual bitcoin, not futures or options on the coin. The ease-of-use afforded by an ETF means that investors need not worry about learning the ins and out of crypto wallets or direct purchase of coins via online exchanges.
Traditional Market Exchanges vs. Cryptocurrency Exchanges
Like other ETFs, bitcoin ETFs are exchange-traded funds that trade on traditional market exchanges like the TSX, rather than cryptocurrency exchanges.
An ETF tracks the price of an underlying asset or index, so the price of one share of a bitcoin ETF will fluctuate with the price of bitcoin in the same way as an ETF for some other asset or industry does.
In contrast, a cryptocurrency exchange or digital currency exchange (DCE) is a dedicated platform for trading and converting cryptocurrencies. DCEs facilitate the exchange of one cryptocurrency for another, the buying and selling of coins, and converting digital currencies into fiat currencies.
Different DCEs will have different options and features, as well as different intended users. Some DCEs are built for traders, and others for fast cryptocurrency exchanges. On these exchanges, traders profit through the use of cryptocurrency pairs to take advantage of highly volatile currency rates. Unlike traditional market exchanges, DCEs are open all day, every day, all year long.
Fundamentally, a bitcoin ETF provides a way for investors who might not otherwise have the means or inclination to acquire bitcoin directly to gain exposure to cryptocurrency through traditional market exchanges. They do not require the use of cryptocurrency exchanges.
Why an ETF is Preferable to a Crypto-Specific Account or Brokerage
Given the differences between traditional market exchanges and cryptocurrency exchanges, the benefits of holding a bitcoin ETF rather than holding bitcoin in a crypto-specific account or brokerage should be evident.
Primarily, a bitcoin ETF is a convenient, secure alternative to a direct bitcoin investment.
Investing in a bitcoin ETF provides investors with the opportunity to gain exposure to cryptocurrency through a traditional investment vehicle, without the need to worry about the intricacies of how bitcoin works, dealing with a cryptocurrency exchange, or the risks that come with direct bitcoin ownership. Like other stock or ETFs, a bitcoin ETF is accessible through brokerage accounts and can be easily bought and sold in your portfolio.
Given the growing number of horror stories of investors who have lost passwords or locked themselves out of millions of dollars’ worth of cryptocurrency, the risks of direct investment are apparent. Holding a Bitcoin ETF is an efficient alternative to a direct bitcoin investment while still holding real bitcoin in your portfolio.
The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed.
These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.
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