Spot Bitcoin ETFs: An Overview
In 2013, the Winklevoss twins applied to the SEC to create a spot Bitcoin exchange-traded fund (ETF). After a decade-long wait, spot Bitcoin ETFs were finally approved on Jan. 10, 2024. This has sparked interest in ETFs and raised questions about how they work and their role in buying Bitcoin.
Understanding ETFs
An ETF is an investment product that allows investors to put money into a fund and receive shares in return. The returns on these shares are determined by the performance of specific products that the fund tracks, such as stocks, bonds, commodities, or investment strategies. Unlike mutual funds, ETF shares are traded on stock exchanges, making them attractive to investors who can easily buy and sell them at low costs. ETFs are regulated by the SEC, providing a level of security for investors.
The approval of spot Bitcoin ETFs means that both retail and institutional investors in the US now have access to regulated Bitcoin. This will likely increase mainstream adoption of cryptocurrency as it can be bought and sold through familiar brokerages.
The Difference Between Futures and Spot ETFs
While spot Bitcoin ETFs track the value of Bitcoin directly, futures ETFs provide exposure to the performance of Bitcoin derivatives. Spot ETFs hold actual BTC, while futures ETFs hold monthly futures contracts. The process of constantly rolling these contracts can lead to poor performance due to price fluctuations. As a result, spot Bitcoin ETFs have outperformed futures ETFs by 16% in 2023
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