Simplified Explanation Of Bitcoin ETF And Its Significance
Following the approval of ProShares Bitcoin ETF, the price of Bitcoin has increased to a new all-time high. The ETF fund itself received a positive welcome with its share rising 5%, which automatically made it the second-best ETF debut ever, But that’s not all.
ProShares ETF is the first Cryptocurrency approved by the Securities and Exchange Commission of the United States. So, what does the ETF mean, and what does it have to offer the world of cryptocurrency?
What is an ETF?
The full meaning of ETF is (exchange-traded fund) and it enables people to invest or trade a particular financial product without actually acquiring it. It is synonymous with buying shares of a firm.
It is defined as a type of security that tracks index, sector, product or other assets but which can be bought or traded on a stock exchange the same way the formal stock can.
An ETF can be programmed to track anything ranging from the price of an individual product to a broad and distinct variety of Securities.
ETF enables people to buy a little amount of a mixed portfolio rather than just a single asset. They are regulated thereby enabling them to be traded on stock exchanges making it easy to buy and sell.
ProShares ETF is significant because it offers an incredible opportunity to investors helping them track Bitcoin returns through a brokerage account.
While trading under the name BITO, it can be bought or sold just like a regular stock without the need of opening a cryptocurrency exchange and crypto wallet. The ETF has also opened the pathway for a large number of investors who already have a brokerage account and are comfortable buying stocks and ETFs.
BITO will invest basically in Bitcoin futures contracts, which are considered to be derivatives and not directly investing in the actual asset, with the U.S Securities Exchange Commission unwilling to expose investors directly to Bitcoin.
Simply put, a futures contract is an agreement to buy and sell an asset at a future time and an agreed price.
Nevertheless, with Bitcoin still considered unregulated, the same goes for the ProShares ETF, as the traders are exposed to cryptocurrency volatility. The launch of the ETF also indicates that Wall Street is interested in cryptocurrencies.
Certainly, there will be more is to come but the big question is when?
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