With Bitcoin’s recent breakthrough above the $65,000 barrier, the total market capitalization of the cryptocurrency ecosystem has surpassed $2.5 trillion in value. Bitcoin itself currently has a market capitalization of $1.2 trillion, making it the largest and most popular cryptocurrency in the world.
Bitcoin is swiftly gaining popularity as major corporations pour billions of dollars into the digital asset. Due to Bitcoin’s success as an asset, everyone is wanting to get some. Historically, the most common way to purchase cryptocurrency has been through centralized exchanges such as Binance; however, the technical aspects of Bitcoin ownership, such as managing wallets and keeping track of Bitcoin addresses and private keys, are inherently difficult for newcomers to master.
Most investors are concerned about the possibility of losing their investments as well as the time required to educate themselves on the technology and mechanisms of the medium. But what if there was a lot more straightforward method of investing in crypto? What if there was a method to invest in crypto assets in the same manner that you would invest in stocks? There is, in fact, something! And it’s referred to as an ETF, which stands for Exchange Traded Fund.
The first exchange-traded fund tied to crypto assets debuted on the New York Stock Exchange this week, marking a significant step forward in the mainstream adoption and popularization of cryptocurrencies. That is to say, anybody who has a brokerage account will soon be able to buy and sell a crypto-backed financial product on the stock market. This comes after years of hesitancy on the part of financial authorities in the United States about crypto assets, which is famously unpredictable in the marketplace. However, it appears that the government is now willing to experiment with fresh ideas.
The premiere was a huge success. According to company officials, when ProShares, the Maryland-based firm that developed the ETF, rang the opening bell at the New York Stock Exchange on Tuesday morning, the asset’s trading volume exceeded $1 billion on its first day of trading on the NYSE. As a consequence, it is one of the most successful ETF launches in history, ranking third overall. Bitcoin’s price rocketed beyond its previous all-time high of $64,895 to set a new all-time high of $66,975 later in the day.
What is an ETF?
An ETF, also known as an Exchange Traded Fund, is nothing more than a kind of financial instrument that monitors the value of its underlying assets, in this instance, Bitcoin, and is traded on a stock exchange like any other investment instrument. ETFs are exchanged on typical stock markets, and their value correlates to the price of the underlying asset they are invested in.
ETFs were first created in 1993 and quickly gained popularity among ordinary investors seeking to diversify their portfolios by investing in a selection of assets. If investors wanted to make an investment in the S&P 500, they could simply do so by purchasing an ETF that tracks the index.
Similarly, if investors want to invest in Bitcoin, they can do so through the purchase of a Bitcoin ETF, which they can then use to trade on regular stock markets. Bitcoin ETFs, which are relatively new, are designed to track the most current price of Bitcoin. As a result, investors do not have to purchase Bitcoin and deal with the hassles of keeping it secure.
Blockchain technology, in general, and crypto assets in particular are still in the early phases of development. When compared to the millennia-old fiat currency market and the millennia-old gold market, Bitcoin and cryptocurrency are just a decade and a half old, respectively. The asset is susceptible to uncontrolled volatility while still in its infancy, making it highly hazardous for traditional investors and traders to invest in or trade.
Additional to this, and in addition to the asset’s decentralized and uncontrolled character, holding Bitcoin requires a thorough understanding and command of technology, such as the capacity to store and maintain Private Keys in hardware wallets, software wallets, or cold storage.
Additionally, purchasing crypto directly from the source exposes investors to the possible risk of trading on exchanges, many of which have been hacked on a regular basis. As a result, investors must figure out how to file taxes for each purchase and sale of their assets, and if they don’t already know how to do most of these things, they’ll have to spend some time doing research, go down the cryptocurrency rabbit hole, and figure out how to comprehend everything on their own.
This frequently results in novices feeling frightened by the mechanics and activities associated with crypto assets, making exchange-traded funds (ETFs) an excellent choice for them. With an ETF, investors may delegate the handling of Bitcoin to trustworthy third parties, eliminating the need for them to learn about or interact with the asset.
What makes ETFs a great investment?
The majority of mainstream investors are familiar with exchange-traded funds (ETFs); however, they are less familiar with cryptocurrencies. A consensus among those who follow the cryptocurrency industry is that crypto ETFs have the potential to inject money into the cryptocurrency market. Conventional and traditional investors can look forward to a secure and prosperous future thanks to exchange-traded funds. This makes it easier for them to place wagers on the price of Bitcoin rather than making direct investments in the cryptocurrency itself.
Exchange-traded funds (ETFs) make it extremely simple to invest in cryptocurrencies. Because some crypto assets like Bitcoin have been by far the greatest performing asset of the past decade, many people are likely to invest in Bitcoin exchange-traded funds (ETFs). It is anticipated that the Bitcoin ETF will open up new channels for bitcoin adoption.
Advantages of ETFs
An exchange-traded fund (ETF) provides investors with exposure to the price of crypto assets without requiring them to go through the difficulties of trading and purchasing the assets.
Investors can opt to hold a diverse set of assets.
Because of cryptocurrency’s decentralized structure, taxing the asset may be a tough task to do. Trading in crypto ETFs on exchanges, on the other hand, is regulated by authorities and is eligible for tax efficiency benefits.
Disadvantages of ETF
- High management Fees
- Limits to trading
Stablecoins and ETFs
Stablecoins and exchange-traded funds (ETFs) are becoming more comparable. Stablecoins are just logical expansions of exchange-traded funds (ETFs). As with an exchange-traded fund (ETF), the value of a stablecoin is typically tied to the value of a relatively stable underlying asset, such as the United States dollar or gold. The creation-redemption mechanism for a stablecoin is similar to that of an ETF, which helps to keep the value of the stablecoin close to the value of the underlying asset. Price volatility has been a long-standing issue in the cryptocurrency world, and this may, at the very least, theoretically help in its resolution. The distribution of stablecoins is the most important difference between the two currencies in terms of value. ETF units are traded on public stock exchanges and may only be bought and sold on stock exchanges. They are not traded on private stock exchanges.
Stablecoins, in particular, are causing a change in the cryptocurrency sector, which is very interesting. Stablecoins, in contrast to other blockchain-based currencies, have many of the features of previous digital currencies, which makes them particularly appealing. Transparency, security, anonymity, and accessibility are among these qualities, but they do not exhibit the volatility that characterizes almost every other cryptocurrency.
It is now estimated that the market capitalization of stablecoins is more than $130 billion. The fact that they are not affected by the volatility of the cryptocurrency market allows them to offer a fresh perspective to the table. Unlike other forms of currency, stablecoins operate in the same way as they do.
Cryptocurrency stablecoins are currently at the center of every cryptocurrency transaction that takes place. Businesses all across the world are adopting cryptocurrencies, with stablecoins serving as a new and secure payment method for those doing business internationally. Because of stablecoins, we are now able to utilize cryptocurrencies in the manner in which they were designed to be used.
Stablecoins are widely available and may be found in practically any place. The growth of Stablecoins is supported by industry titans, e-commerce behemoths, tech behemoths, and global economies, to name a few. In a wide range of financial services, stablecoins and cryptocurrency have a great deal of potential to grow. It is undeniable that stablecoins have benefited millions of families all around the world.
Unlike ETFs, when it comes to cryptocurrency trading, trading stablecoins is the least risky method of making money. During periods of excessive volatility, trading stablecoins can generate returns in excess of 30% APR. While this may not seem like much in comparison to the returns predicted by cryptocurrencies, with stablecoins there is virtually no risk of losing money.
While ETFs are only traded on stock exchanges and only specific stock exchanges, Stablecoins can be traded on any cryptocurrency exchange. Coinbase, Binance, and Kraken are all well-known cryptocurrency exchanges. Each platform has a somewhat different sign-up process, but it usually only takes a few minutes and involves only the most basic of information about the user. Unlike ETFs, you don’t need a brokerage account or a very lengthy KYC check.
After you’ve registered, you’ll need to purchase stablecoins in a 1:1 ratio to complete the process. This can be accomplished through the use of credit/debit cards. Having purchased your fair share of stablecoins, you’ll discover them in your wallet, where they will appear as an asset.
Traders can also earn fixed income or yield farming rewards by staking their tokens. Additional features include the ability to often transfer stablecoins from trading platforms to hardware wallets, such as ledger wallets.
Furthermore, users have the option of transferring their stablecoins into a crypto savings account. In most cases, a wallet does not yield interest; but, a cryptocurrency savings account, on the other hand, can generate interest over time. Coins held on some platforms can earn up to 12 percent interest on their value over time.
While ETFs are the right step forward in terms of mainstream adoption, Cryptocurrencies are supposed to stay decentralized. Bitcoin ETFs and the regulations surrounding them could translate into Cryptocurrencies in general. With new traders entering the cryptocurrency market is rapidly expanding there’s no doubt that cryptocurrency trading can become exceedingly dangerous.
One day you could be worth a million dollars, and the next day you could be worth thousands of dollars less. When it comes to cryptocurrencies, it’s not always a fair game; however, stablecoins provide a much safer atmosphere for trading; yet, keep in mind that there are risks associated with anything in life. So trade responsibly.