ETFs, otherwise known as exchange trading funds, are funds held by a specific group of assets that investors can invest into. These assets are typically commodities such as gold and oil. They allow investors to invest directly in an asset, without needing to hold it themselves, or having to buy shares in an asset-holding company.
To explain how an ETF works, let’s say that an ETF holds a total of 100 barrels of oil. If the current price of a barrel of oil is $100, then the ETF is said to hold $10,000 worth of oil. This means that when a person buys shares of the ETF, they become owners of the amount of oil equivalent to their investment.
Recently, there has been talks about creating a Bitcoin ETF. This would allow individuals to invest in Bitcoin without needing to actually purchase any tokens. In turn, this could mean massive price gains for Bitcoin and its altcoins.
However, there is a lot of controversy on the subject, and while a Bitcoin ETF could be a boon to the industry, there could also be some negative side effects as well. Below, we’ll look at both the positive and negative effects of Bitcoin ETFs.
The Positive Effects
In the world of Bitcoin, the current regulations are more than a little bit confusing. So much so that many large companies have left the market due to its sketchy regulation policies.
Therefore, by creating a Bitcoin ETF, it’s likely that larger institutional investors would start getting involved, which would mean more structure, as well as regulation to the industry. Furthermore, this would give investors a better impression of investing in Bitcoin, and show that it is a perfectly safe way to invest and exchange funds, without worrying about any legal implications.
Lastly, the current risks involved in Bitcoin trading, such as losing your password or the threat of cyber theft, are seen as much riskier than buying traditional assets. Therefore, Bitcoin ETFs could help individual investors feel safe when investing in Bitcoin via a more traditional investment method.
The Negative Effects
Consequently, Bitcoin ETFs could also have an impact on who will be able to invest in Bitcoin. As it stands, it doesn’t matter if you’re looking to invest $100 or $100,000, anyone can start investing in Bitcoin.
However, as larger institutions get involved and more regulations are put in place, we may see changes such as minimum investment requirements and stricter KYC guidelines. While this wouldn’t have much of an effect on larger investors, it could have drastic negative implications for retail investors looking to buy smaller amounts of Bitcoin.
Finally, one of the major goals of Bitcoin was to make it easier for individuals to invest and to free investors from having to rely on third-parties (such as banks) to exchange funds. But as large institutions begin creeping into the industry, we may start to see new regulations put in place that make it difficult (or perhaps even impossible) to buy Bitcoin. Some cryptocurrency enthusiasts might argue this goes against the core values of Bitcoin and the blockchain community.
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.