Studying a new phenomenon that has never existed before can be difficult. A series of unreliable guesses are born, people begin to believe the most implausible. Exactly the same story happened with Bitcoin spot exchange-traded funds.
ETFs give the right to own BTC
One of the earliest misconceptions is that Bitcoin spot ETFs give you the right to own the cryptocurrency itself. In reality this is not the case. A spot BTC ETF is essentially just a fund that invests in the largest cryptocurrency and the price of its units/shares follows the price of BTC. No one promises a direct exchange of shares/shares for digital assets.
Spot Bitcoin ETFs Guarantee Profits
Any investment is a risk. Without any guarantees. By investing your money in Bitcoin, Ethereum, Pepecoin and any other altcoin, you can either lose or gain. If you buy a cryptocurrency and it increases in price, you will earn. Otherwise, you will have to put up with losses. Everything is simple and clear.
It's a similar story for ETFs. If you buy ETF shares, if they go down, you will lose your hard-earned money. If the stock goes up, you can make money. In order not to be unfounded, we will give examples.
So, spot Bitcoin ETFs started launching on January 11th. One of them was the Grayscale fund – GBTC. From January 11 to January 23, its shares fell in price by 21%. Thus, those who bought and held these securities could lose a fifth of their investment.
Source: tradingview.com
But from January 23 to March 13, GBTC shares grew. During this period, the securities gained more than 91%. Thus, those who bought during this period of time could practically double their wealth.
Source: tradingview.com
ETFs can be used for transactions
The only thing you can use Bitcoin spot ETFs for is investment. You can buy shares on trading platforms (NYSE Arca, NASDAQ). But ETF shares are not very suitable as money or a medium of exchange.
By and large, spot BTC exchange-traded funds are similar to derivatives in financial markets. They are also used exclusively for earning money, and do not give any right to a share in the company or to cryptocurrency.
ETF – only for big players
One of the advantages of spot Bitcoin ETFs was considered to be the possibility of a large influx of capital into the cryptocurrency.. All because there are a number of legislative difficulties, according to which not all people can buy BTC. The advent of spot Bitcoin exchange-traded funds solved this problem.
However, what has helped big players get involved in the crypto industry does not mean that mere mortals cannot buy ETF shares. The initial demand for shares of the iShares Bitcoin Fund (IBIT), a fund of the largest investment company BlackRock, was created by retail (non-professional) investors.
ETF volatility = Bitcoin volatility
If spot Bitcoin ETFs follow the price of BTC, do the assets have the same volatility? Absolutely not like that. If this were true, then the share prices of all exchange-traded funds would change identically, which is not observed in reality. What's really going on?
First, following is not absolute.. Mistakes and delays happen. For example, the Ishares Bitcoin Trust performs its calculations based on the CME CF Bitcoin Reference Rate – New York Variant, an index that is calculated once a day based on trading data from the largest cryptocurrency exchanges. Thus, within a trading session there may be different discrepancies with the market price of Bitcoin.
Secondly, an ETF is a fund. And if so, some money is allocated to people managing assets.
ETFs are not suitable for beginners
Important Myth: Exchange Traded Funds are Complex and Dangerous. In fact, everything here is quite simple and adjustable.. You will have to deal with much less than with the purchase of real Bitcoin, where you need to dive into the technical nuances: seed phrase, open (public) and private (private) keys, crypto wallets, etc.
Trading ETF shares is essentially no different from trading shares of ordinary companies on the stock exchange.. Create an account, deposit money there, go through all registration procedures. Voila. The existence of the myth is largely due to the fact that the very name ETF can confuse. If you look at it, there is nothing remarkable here — just a company that invests in some asset or basket of instruments. In the case of spot Bitcoin ETFs, the money is invested in the first cryptocurrency.
Conclusion
The existence of myths about exchange-traded funds is explained simply: potential investors, out of habit, do not fully understand what they are. As a result, fear arises, and, as you know, he has big eyes.
This material and the information contained herein do not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.