Spot and futures-based Bitcoin ETF: What is the difference?
Spot and futures-based Bitcoin ETF: What is the difference?
On October 19, 2021, the United States Securities and Exchange Commission (SEC) approved the first Futures-Backed Bitcoin Exchange Traded Fund (ETF).
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With a futures-based ETF, players from the old financial industry have a regulated product that enables them to participate in the price of Bitcoin. However, there is still a big difference between this and a spot-based ETF. This article examines both and outlines their differences. Before we immerse yourself, let us answer the more urgent question first. An ETF is a traditional investment instrument that is designed to pursue the performance of a specific asset or a group of assets. They enable investors to engage in these assets and a diversification of their portfolios without having to worry about possession of the underlying products. Essentially they are a much simpler alternative to buying or selling individual assets. There are different types of ETFs, and most of them have the common feature that they group assets according to the industry that they belong. There are, for example, ETFs that represent companies in the airline business, in the benzine business, in the energy (or green electricity) area, etc.
To understand what a Bitcoin futures ETF is, it is important to know what Bitcoin futures are. You are a derivative trade instrument that enables two parties to buy or sell BTC at a predetermined price and date. Basically, a party undertakes to buy or sell BTC at a certain price at a certain date, regardless of how the price ends on that day. This specific date is also referred to as the processing date (or expiry date). As soon as the Bitcoin Futures Contract runs (or is billed), a party has to buy (or sell) party at an agreed price-essentially you will receive it with a discount or pay a bonus, since the price is probably not the same as when concluding the contract. These contracts are normally traded on raw material exchanges, such as the Chicago Mercantile Exchange (CME). The price of Bitcoin futures contracts and the market price of Bitcoin can vary depending on the billing of futures dealers. For example, if more people believe that Bitcoin's price will increase and bet on it, the value of this futures contracts will be higher than the current Bitcoin market price. This is important for our next point. Let us examine what a futures-based Bitcoin ETF is. As you may have determined, it is a stock market-traded fund that is not covered by physical bitcoins, but by Bitcoin Futures contracts. The value of this ETF would be derived from the price movement of Bitcoin futures, and the company that outputs the ETF must hold positions in these futures contracts and anchor the price of its ETF. essentially it does not follow the price of Bitcoin, but the price of Bitcoin Futures. A regular spot-based Bitcoin ETF would be one who pursues the price of actual, physical bitcoins. The main idea would be to enable investors to be involved in BTC via a regulated and financially familiar product without having the actual underlying. This brings with it some advantages, especially for non-crypto-seven investors who come from the field of legacy financing. Some of them include: Exposition compared to the price of Bitcoin through a regulated product Easy access no need to save bitcoins no need to manage private keys the possibility to sell the price of Bitcoin the latter is an important consideration, since the spot-based investment does not allow users to bet on falling prices. If there is an ETF, investors can sell the shares of ETF empty and benefit from downward movements. In essence, the differences between Futures-Backed and Spot ETFs can be narrowed down to a few things. First, the spot-based ETF is covered by real bitcoins, while the futures ETF is covered by derivatives (in this case-Bitcoin-Futures-Contract). What is an Exchange Traded Fund (ETF)?
What is a Bitcoin futures ETF?
What is a spot bitcoin ETF?
summarize differences
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