ETFs (exchange traded funds) have received a lot of talk in cryptocurrency markets over the past few years. While most who are involved in traditional finance are aware of what ETFs entail, this post will take the time to introduce them to cryptocurrencies new class of investors. ETFs can be most easily explained by learning about index and mutual funds first.
Mutual Funds
Mutual funds are a collection of stocks, bonds, currencies, futures, and treasuries that are professionally managed. The everyday person doesn’t have time to keep track of their investments, so they put their money with experts in exchange for a fee.
Index Funds
Index funds are a grouping of stocks that allow investors to track and invest in a variety of companies. Most of you have probably heard of the more common ones such as the S&P 500, and the Dow Jones Industrial Average. When investing in the S&P 500, you are purchasing an index of the top 500 companies listed on American stock exchanges.
ETFs
ETFs are similar to mutual and index funds in that they often are a collection of assets, but have a few key differences. Unlike mutual funds, ETFs are traded throughout the day and it’s very possible for an ETF to be a single asset.
This is what would happen in the event a Bitcoin ETF is approved. In exchange for a fee, Bitcoin would be stored and split into shares for people to invest in. Because all storage and custodial services are done by the creators of the ETF, they will charge a fee similar to a mutual fund. ETF management fees are often much lower than a mutual funds.
Just the other day, a Blockchain ETF was launched on the London Stock Exchange, making it easy to invest in revenue generating blockchain businesses, such as Square (Cash App), CME group and Monex Group.
Conclusion
Now that you have an idea of what ETFs are, you are hopefully more excited about the pending Bitcoin ETF approval. If approved, Bitcoin and cryptocurrency markets will receive much greater exposure to the general public. Expect the SEC to reach a decision on whether to reject, accept or extend the status of Bitcoin ETFs by the end of April.