The first Bitcoin futures exchange-traded fund (ETF) was launched at the New York Stock Exchange in October this year. While Bitcoin ETF is backed by real Bitcoin, Bitcoin futures ETFs are backed by futures contracts. ETFs are regulated financial products that represent a wide range of assets. Given the growing popularity of ETFs and Bitcoins, it was only a matter of time when the two spheres would meet. A Bitcoin ETF allows people to gain investment exposure to the cryptocurrency's prices without directly participating in the Bitcoin market. At the time of writing, Bitcoin was trading at Rs. 54.35 lakhs.
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What is Bitcoin Futures ETF?
Investors can sell or buy ETFs like stocks. But, unlike mutual funds, ETFs can be bought and sold anytime during market trading hours. Bitcoins ETF allows two investors to reach a contractual agreement to buy or sell Bitcoin at a given price someday in the future. This is usually traded on a commodities exchange.
Top things to know about Bitcoin ETF:
Since the trading of Bitcoin ETF is done on the basis of a predefined price, it does not rely on the final price of the Bitcoin on the day of trading.
The final price of the cryptocurrency does not affect the Bitcoin ETF contract. Therefore, one of the two parties incurs a profit while the other incurs a loss. The margin of profits for one party can have high magnitudes.
Bitcoin ETF makes it easier to buy and sell the commodity as it removes the cost and requirement of storing an asset. Investors need no more be concerned about security procedures associated with holding the crypto coin.
Bitcoin ETF does not allow investors to hold and trade assets like Bitcoins on bigger trading platforms.
Since Bitcoin ETF is an investment vehicle, it allows investors to short sell shares of the ETF if they expect a plunge in Bitcoin price in the future.