On Friday, just as our article on the future of cryptocurrency went live, Bitcoin hit a one year high as Blackrock moved forward with steps to create a bitcoin exchange-traded fund. This, despite the SEC closing in on the fledgling industry, threatening serious regulations in the otherwise unregulated wild west that is cryptocurrency.
Until now, the SEC has shut down any cryptocurrency related ETFs, but the tide may be turning. On Friday, the regulatory body approved the first leveraged Bitcoin Futures ETF and with BlackRock serious about moving forward, many speculate that a Bitcoin Spot ETF will come next.
Um… What is an ETF?
An ETF, otherwise known as an exchange traded fund is essentially an investment vehicle that pools money from multiple investors to buy a diversified collection of assets. It provides an easy way for people to invest in a wide range of investments without having to pick individual stocks or bonds.
Think of it like a snack basket. Stay with me, I promise I’m going somewhere with this. Imagine you and your friends decide to pool your money together to buy a variety of snacks. Each of you contributes some money, and you create a snack basket with different types of treats like chips, chocolates, and cookies. Now, instead of each person buying snacks individually, you all own a portion of the snack basket.
An Exchange-Traded Fund (ETF) is similar to that snack basket. It's a type of investment that combines money from many different people to buy a collection of different assets, like stocks, bonds, or commodities. Instead of buying individual stocks or bonds, you can buy shares of an ETF, which represent a small piece of the overall collection of assets.
Spot Vs. Futures
What the SEC approved on Friday was a Futures ETF. A Future is a contract that speculates on a commodity and guesses what the price will be at some point in the future. With a Bitcoin future, you enter into a contract to buy or sell Bitcoin at a predetermined price on a specific future date. A Spot ETF is different in that it would allow you to track the price of Bitcoin directly. If the price of bitcoin goes up today, so does your investment.
Why is this a big deal?
This is a big deal because right now, getting into crypto is complicated and unfamiliar to most investors. You have to know what websites to visit, create a digital or a hard wallet, and navigate a new online frontier. Securing a Bitcoin ETF opens up a world of possibilities for institutional investors like BlackRock and mom and pop investors alike.
Some benefits include:
- Buying and selling Bitcoin ETFs from the safety of your favorite brokerage
- Easily adding Bitcoin ETFs to your 401k and Roth IRA
- Bitcoin ETFs becoming a part of the investment dollars from pensions, hedge funds, retirement accounts, and more.
- No need to create a crypto-wallet and deal with potential security concerns
- Likely more cost effective to buy and sell off blockchain
Is the tide turning with Crypto?
It is definitely too soon to tell, but like we talked about in our Friday article, it’s going to take some serious effort to restore consumer confidence in cryptocurrency products. An ETF is a great step forward because it repackages Bitcoin into something more familiar and trusted.