What is a Bitcoin ETF and why does it matter?

An ETF, or exchange-traded fund, is an investment fund that tracks an index, asset, or a basket of assets, and is traded on an exchange. For example, an SP500 ETF tracks the performance of the 500 largest listed companies in the US.

 

Investors buy or sell their ETF shares just as they do with any other traded commodity. A BTC ETF would be traded in exactly the same way.

 

BTC ETFs come in various shapes and sizes. Some funds plan to invest directly in BTC, while futures-based BTC ETFs will track the performance of futures contracts. There’s a clear distinction between BTC futures ETFs and BTC ETFs that are backed by actual bitcoins, also known as spot BTC ETFs.

 

A BTC futures contract is an agreement between a buyer and seller to buy and sell BTC at an agreed price at a future date. The agreement (contract) is the traded commodity, not the actual underlying asset (Bitcoin). It gives investors exposure to BTC without having to hold actual cryptocurrency.

 

Who buys ETFs?

 

The short answer is anyone can buy an ETF. A fully-regulated BTC futures ETF would give investors exposure to BTC without actually having to hold any cryptocurrency themselves, which at the moment is not possible due to a lack of regulation.

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