In February 2021, the first Bitcoin ETF ever was launched. The new opportunity meant that traders could choose to not only invest directly in cryptocurrencies, but also go through ETFs. Cryptocurrency ETFs have the potential to gain popularity in the following years. Here, we will look at pros and cons with the different types of investments.
The Rise of Bitcoin and Crypto
Many people associate cryptocurrency with Bitcoin, which was the first cryptocurrency in the world. The digital coin runs on Blockchain technology, meaning the security is high and transactions fast globally. Today, there’s a huge number of different digital currencies available on the market and a continuously growing amount of traders.
If you’re looking to get started with crypto trading or improve your investment strategies, have a look at Cryptoholics for an extensive supply of guides, advice, and tips. The crypto market is still expanding more than 10 years after its start – and it’s safe to say that this is more than just a fad. During 2020 Bitcoin more than doubled in value, with the price being driven by demand just like other types of financial assets for trading.
What is an Exchange Traded Fund (ETF)?
So, what is an ETF? ETF stands for Exchange Traded Fund and has some similarities with index funds since they track the performance of a market, for example stocks in a specific industry.
You trade ETFs on exchanges just like stocks, forex and crypto. Cryptocurrencies such as Bitcoin, Ethereum and hundreds of more, can be traded all days a week, 24 hours a day. ETFs on the other hand, Exchange Traded Funds, are restricted to buying and selling during workweek hours and the price varies with the currencies they track.
Finding the Best Crypto Exchange
You can buy and sell crypto on an exchange of your choice. Here you can read more about the best crypto exchanges 2021. The fact that you’re able to trade 24/7 with thousands of currencies has made the market popular despite a steep learning curve.
You can trade one type of digital coin for another, or trade crypto in exchange for euros, dollars, British pounds, and other fiat money. You can even start with a trading simulator to help you understand how the system works without the risk of losing money.
How Crypto ETFs Work – Are They any Good?
As mentioned before, a cryptocurrency ETF is a fund that follows the price of crypto. When you invest directly in Bitcoin and other cryptocurrency, you need storage for your digital currency, for example a crypto wallet. This isn’t the case with crypto ETFs, making them slightly easier to get started with. ETFs are bought and sold using traditional brokerage accounts and also gives you diversity in your investments thanks to the basket of different digital currencies. This lowers the impact if a certain digital coin drops in value.
The downside with crypto ETFs is that the potential profit generally is significantly lower than investing directly. The management fees are relatively high compared to other ETFs. Lastly, the fact that you don’t own the crypto means you’re unable to trade for example Bitcoin for Ethereum, and you don’t take part in the decentralized financial system of cryptocurrencies.
