On Tuesday, the third-ever Bitcoin Exchange Traded Fund (ETF) made its trading debut.
Investment firm VanEck’s Bitcoin Strategy ETF (XBTF) began trading at Cboe Global Markets, less than a month after ProShares launched the world’s first ever bitcoin ETF (BITO) on the New York Stock Exchange and the Valkyrie Bitcoin Strategy ETF launched on Nasdaq (BTF).
The highly-anticipated new ETFs are a milestone for the Bitcoin space, however, they don’t track the current price of the cryptocurrency. Instead, they hold bitcoin futures. ETFs that are designed to track the spot price of Bitcoin are still facing regulatory hurdles and delays from the Securities and Exchange Commission (SEC).
The crypto space has been awaiting a Bitcoin ETF for many years now. In 2017, asset managers started applying to launch bitcoin ETFs that track the cryptocurrency’s spot price, however, the SEC rejected the applications based on the fact that they were unlikely to resist market manipulation.
If you need a refresher, ETFs are a type of security that track an index, sector, commodity, or other asset, and are sold on a stock exchange the same way a regular stock is. Holding an ETF allows investors to passively invest in multiple companies, and they are often designed in themes like ESG or, in this case, Bitcoin.
Futures-based ETFs don’t provide total exposure to the cryptocurrency itself, but rather its future price. This means that gains on futures-based funds will not likely match BTC’s spot price. These ETFs have high fees, charging investors brokerage fees when they buy and sell shares.
While the emergence of Bitcoin ETFs adds a new experience for investors and broadens the market in general, the notion of having an ETF based on the cryptocurrency’s future price tends to detract from Bitcoin’s inherently high liquidity. That said, for those looking to hold over the long term, a Bitcoin ETF can provide similar benefits to buying directly.
Buying Bitcoin directly through apps like Binance and Robinhood would be likely a better investment option, as investors are given direct access to the investment rather than having to buy it with additional fees.
By buying through these platforms, investors can buy and trade crypto without high fees. That said, buying an ETF is convenient and comes with investor protection, whereas buying Bitcoin directly can be inherently riskier.
On its trading debut, BITO jumped 4.8% to close at $41.94.