The Tribune

By Chris Illing

CCO @ ActivTrades Corp

The Securities and Exchange Commission (SEC) in the US has approved exchange-traded funds (ETFs) investing in the digital currency, Bitcoin, after a long period of hesitation. In the struggle with Bitcoin proponents, including large banks and asset managers, the SEC admitted defeat and ultimately allowed Bitcoin ETFs.

However, it still considers these investments to be risky and speaks of “countless risks”. Many Bitcoin fans interpret this as the breakthrough, and the beginning of a new era, for the crypto currency.

An ETF (Exchange Traded Fund) is a stock exchange-traded fund that tracks a number of assets, such as those collected in an index. The fund investor does not buy a single share, but a whole basket of shares. Due to the broader diversification, it reduces the investment risk compared to an individual investment.

A Bitcoin ETF, on the other hand, exclusively tracks the price of crypto currency, which has historically been subject to extreme fluctuations in a poorly regulated market. Even with the Bitcoin ETF, investors in the US do not invest directly but indirectly.

For institutional and interested private investors, it is easier to invest in Bitcoin with funds. You no longer need to register with an exchange, such as Coinbase or Binance, to invest in a token and then hold it in a wallet. Experts expect that Bitcoin ETFs will now be launched and approved in greater numbers in the US.

Since the total number of Bitcoin is capped at 21m, a steadily increasing demand for the currency would lead to higher prices. In fact, neither the demand for Bitcoin ETFs nor the price action of the cyber currency can be predicted. Bitcoin’s value could continue to fluctuate sharply, due to regulatory interventions, technological developments and market sentiments.

No investment is without risk. This also applies to investments in Bitcoin funds. Of course, if the price of the cyber currency falls, the fund also loses value. The hope of Bitcoin fans, however, is that the sometimes extremely high volatility of the cyber currency will decrease due to an increasing number of investors.

But this hope could be deceptive. This is because most of the tokens, which price the ETFs merely track, are in the hands of a manageable number of large investors. These so-called “crypto whales” amassed large Bitcoin holdings years ago before the price of the cyber currency exploded.

If the Bitcoin price now skyrockets due to a renewed increase in demand, these “whales” could decide to sell and throw many Bitcoin on the market. Strong price fluctuations are therefore also likely in the future. The new Ishares ETF can be traded on the ActivTrader platform and is available for all professional traders.