Bitcoins new Milestone!

lbi-token (74)in LeoFinance • 2 years ago

Bitcoin (BTC) has recently reached perhaps its biggest and most important milestone yet, as the first two Bitcoin ETFs have now been launched in the United States. Earlier this year we already saw the adoption of Bitcoin as a means of payment by several large companies, including Tesla. However, a US Bitcoin ETF is expected to have an even greater impact on the price development, adoption and exposure of the world's largest cryptocurrency.

If you are now wondering what an ETF is, and what this will mean for the price of Bitcoin, read on.

killing it.png

What is a Bitcoin ETF?

ETF is an abbreviation for exchange-traded fund. An exchange-traded fund tries to track the price of an underlying product as closely as possible. For example, this underlying product could be a basket of stocks, as is the case with the S&P 500. But in this case we are talking about a Bitcoin ETF.

A "normal" Bitcoin ETF should therefore follow the value of Bitcoin. For example, if you put $10,000 into a Bitcoin ETF, when the BTC price is also at $10,000, and that price skyrockets to $50,000, your investment is also worth $50,000. It is important to know that in this case you do not own BTC itself, but an ETF that imitates the value.
Such an ETF can be useful, because people who do not have an account on a cryptocurrency exchange can still benefit from price increases in Bitcoin in this way.

You can buy ETFs on the stock exchange. You also don't run the risk of losing your cryptocurrency. With self-management it can happen that for whatever reason you no longer have access to your wallet, and then you can say goodbye to your hard-earned money.

Still, the two recently launched Bitcoin ETFs are different from you might think…
ETF based on futures contracts

Earlier we talked about "normal" ETFs, which track the spot price of an underlying product. This is simply the price the product has on the market. However, the Bitcoin ETFs recently launched in the US by ProShares and Valkyrie are futures contract-based ETFs. But what does that mean?

A futures contract is a contract in which the buyer of the contract makes an obligation to purchase the relevant product at a predetermined price on an agreed date. The publisher of the contract undertakes to sell the product for the agreed price on that agreed date.

For example, you can buy a futures contract where you buy 1 BTC for $100,000 on January 1, 2022. The issuer of the contract will also have to deliver this. However, futures contracts are tradable and therefore subject to price rises and falls.

BTC as the underlying product

The Bitcoin ETFs released in the United States therefore do not track the value of BTC, but the value of futures contracts with BTC as the underlying product. This immediately makes it a lot more difficult for inexperienced investors, because such a futures contract involves a lot of complexity and because gains or losses can be very different from with a spot ETF.

At the time of writing, "normal" Bitcoin ETFs are not yet allowed to be issued in the US, but it is expected that they will be in the future. Fortunately, it is still possible for less experienced investors to buy Bitcoin on a cryptocurrency exchange.
First US providers of Bitcoin ETFs

ProShares and Valkyrie are the first two providers of Bitcoin ETFs in the United States. They followed each other the same week. ProShares' ETF was launched on October 19, 2021 and Valkyrie's ETF came three days later on October 22, 2021.
Below you will find brief information about both providers:

ProShares
ProShares is an American company that issues exchange-traded ETFs. ProShares' total assets under management are worth more than $66 billion, making it one of the largest players in the US.

As mentioned earlier, ProShares is also the first issuer of a US Bitcoin ETF. This ETF is hidden under the ticker $BITO and is traded on the New York Stock Exchange (NYSE). There are also brokers where you can buy $BITO via a detour.
The launch of $BITO was very successful, reaching $1 billion in volume on day one.

Valkyrie
Like ProShares, Valkyrie is an American company that issues ETFs, but Valkyrie specializes in digital assets, or cryptocurrencies.

Valkyrie is the second largest issuer of a US Bitcoin ETF. This ETF is hidden under the ticker $BTF, but this was previously $BTFD. We all know where this stands for, right? However, the Securities and Exchange Commission (SEC) did not agree with this rather hilarious ticker, unfortunately…

$BTF is listed on the NASDAQ and can also be purchased in a roundabout way through brokers. The launch of $BTF was also successful, but not as successful as $BITO's. $BTF achieved a volume of $80 million on its first day.

What does an ETF do with the price of Bitcoin (BTC)?

Now, you are probably wondering: How does such an ETF affect the price of Bitcoin? Should we consider this bullish or bearish? Or maybe it has no effect at all?

I think it can be seen as a positive and therefore a bullish sign for Bitcoin, for one main reason:

The visibility/popularity of Bitcoin is going to increase enormously. The NYSE and NASDAQ are the two largest stock exchanges in the world, respectively. The whole world looks to these stock markets as a measure of the health of the economy.

As a result, Bitcoin indirectly comes in front of many more people. Even people who previously didn't want to know anything about crypto, didn't look at it, and weren't even familiar with it (yes, even those still exist), can now invest indirectly in Bitcoin through these exchanges. And even if they don't invest in it, these ETFs come under their eyes, and they're going to talk about Bitcoin anyway.

That extra awareness will contribute to the price development of Bitcoin, because there will be enough people who are now being persuaded, and now want to invest in Bitcoin. Whether it is via an ETF or perhaps via the cryptocurrency exchange. Demand is expected to rise, which may have a positive impact on prices.

The ETFs themselves will not have a huge impact on the price of Bitcoin as the ETFs are based on futures. The underlying product of these ETFs is therefore futures contracts and not Bitcoin, which means that no Bitcoin is bought by ProShares and Valkyrie.

Let's get the ball rollin'

However, these ETFs will ultimately also have a positive impact on the price of both Bitcoin and altcoins. The ball is about to roll, and you may remember it from when you first started with cryptocurrency. If you are just new, you often look at Bitcoin first, and then you discover a range of other possibilities (read here altcoins).

Conclusion

Bitcoin has reached another milestone in 2021. Who could have imagined that a few years ago? Bitcoin ETFs listed on not only the largest exchanges in the US, but around the world. Unfortunately, they are only ETFs based on futures contracts and not spot, but we can hope that a "normal" spot ETF will also make its appearance in the US.

The start has been made for Bitcoin on the 'major financial exchanges', and let's hope that a spot ETF can make an appearance here as well, because it affects the price of Bitcoin directly, because the underlying product then is actually BTC.

Still, this Futures ETF is a breakthrough that we can't complain about, because this ETF will certainly bring in a lot of new Bitcoin investors.

And so 2021 has provided another milestone for Bitcoin, after its acceptance as a legal tender in El Salvador, Bitcoin has ended up on the Nasdaq and New York Stock Exchange. It is still indirect, but the start has been made!

Who knows what awaits us in the final months of this already memorable year and beyond in 2022. I am certainly looking forward to it!