A cryptocurrency exchange-traded fund (ETF) works, in theory, like any other ETF. While most ETFs track an index or a basket of assets, a cryptocurrency ETF would track one or more digital tokens. Like other ETFs, digital token ETFs would trade like a common stock on an exchange, and they would be subject to changes in price throughout the day as investors buy and sell.
In order for a cryptocurrency ETF to work properly, the organization managing the fund needs to own the underlying assets that it tracks. In other words, the ETF would have to own a commensurate stake of digital tokens. The ownership of these tokens would then be represented as shares, and by buying these shares investors in the ETF would indirectly own those tokens.
Cryptocurrency bitcoin’s price dropped in 2018 after reaching record-setting price levels in 2017. It has rebounded somewhat in 2019, trading as high as $12,000, but has fallen back into the $8,000 range. Some seasoned investors may be reluctant to get involved in direct investments relating to cryptocurrencies, or digital currencies, since they’re usually highly speculative, the market is largely unregulated, and storing them safely can be challenging. A trust whose shares trade over-the counter on OTCQX offers investors exposure to Bitcoin through the form of a security. In particular, the Grayscale Investment Trust (GBTC) can help simplify the process, but it also comes with disadvantages, such as a high premium and annual fee.
The Grayscale Investment Trust debuted as The Bitcoin Investment Trust on Sept.
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If you want to speculate on the price of bitcoin and other cryptocurrencies without actually buying any digital coins, cryptocurrency ETFs offer one way to do this. ETFs allow you to track the price of an underlying asset or index.
However, cryptocurrency ETFs not only come with a certain level of risk attached, they’re also yet to receive the official seal of approval from important global regulators like the US Securities and Exchange Commission (SEC).
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For more than a year, investment management firms have been pushing for a bitcoin exchange-traded fund (ETF), a financial vehicle which would allow retail customers to purchase the cryptocurrency through stock brokerage accounts. To date, though, the US Securities and Exchange Commission has nixed—or delayed decisions on—every proposal for a crypto-linked ETF.
To the casual bitcoin investor, the agency’s hesitation to approve a bitcoin ETF may seem confusing. After all, cryptocurrencies are widely available on other platforms, including US-based digital asset exchanges like Coinbase and Gemini. In a matter of hours, a new user can create an account and buy bitcoin through one of these services with ease.
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The holy grail of the exchange-traded fund (ETF) landscape, at least in recent years, is the bitcoin ETF. It has been several years since the Winklevoss brothers tried to bring the Winklevoss Bitcoin Trust to life, but to date, the Securities and Exchange Commission has yet to approve a bitcoin ETF.
Still, efforts are ongoing to bring a bitcoin ETF to market in the U.S.
For their part, the Winklevoss brothers are not giving up.
Earlier this year, the U.S.
We don’t need to tell you how well Bitcoin is doing right now, nor do we need to spell out how the surrounding crypto market is booming. Plenty of mainstream media outlets, online publications, and social media coverage have that front covered.
Indeed, Bitcoin and its peers have been all over the news recently. Whereas this time last year crypto was largely confined to the grimy underbelly of the Internet, the market’s 2017 runup has everybody and their grandmother interested in the digital tokens.
David Weisberger is co-founder and CEO of CoinRoutes and a veteran of building trading desks and financial technology businesses. The opinions expressed in this article are strictly his own.
The following article originally appeared in Institutional Crypto by CoinDesk, a free newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday.