The Popularity Behind the bitcoin ETF
With its high value, demand for a reliable and secure virtual transaction medium, the acquisition of a large block of bitcoins by an international investor has increased the attractiveness of the digital currency to investors. The acquisition of a large number of these units would provide an increasing weight to support the price of each unit on the global exchanges. This makes the acquisition of a large number of bitcoins by an international investor (a “blockchain”) attractive to traders. There is a lack of traditional exchanges for buying this type of stock.
While exchange-traded fund offerings exist in Europe, the United States has repeatedly blocked attempts to introduce such products, citing high-level corruption and lack of proper regulatory supervision. However, with the virtual world is rising to new heights and a shift of power in the executive suite from Wall Street to Washington, the attraction to these types of securities by investors may be short-lived. If regulators will not allow for exchanges of this asset class they may find themselves with an abundance of un-priced shares on their hands. On the flip side, if investors do start trading the decentralized nature of the cryptocurrencies, it is likely that they will trade the market far too deeply into the future to benefit from the current uptrend. Even a small move can result in huge losses.
The most likely scenario is that some sort of government or other authority will step in to take control and prevents investors from trading this asset around the clock. If this happens then it is unlikely that investors will be able to gain exposure to the marketplace. If they were able to trade and make a profit, it would likely be a small benefit that would be quickly flushed out as losses became the only financial reward. This makes the adoption of an exchange-traded fund very important.
An ETF does not have to be traded like a traditional mutual fund. For example, in order to provide investors with exposure to the marketplace, an ETF can be “vertically traded”. This means that instead of being bought and sold like stocks, the proceeds of trading are made available to investors in the form of dividends. This works best for people who understand how the markets work but want to stay away from day-to-day fluctuations and concentration in one particular industry. Investors who are interested in investing should seek an ETF because of this advantage. However, this advantage does not help those investors who have no experience or knowledge about cryptocurrencies and cannot invest without relying on someone else to act as a broker.
The Winklevoss twins have created an ETF that will trade like a typical mutual fund. The fund will use a custom-made broker called a naked career. A naked carrier acts as the middleman between the investors and the actual issuer. This means that instead of investing directly in the currencies of the host country, investors will trade in stocks. The main attraction of this type of arrangement is that there is no need to rely on a third party for asset management. This is a particularly appealing feature when it comes to investing in an emerging market such as the one known as the “bitcoin economy”.
One advantage of using an ETF is the liquidity factor. Investors can buy and sell this “asset” just like they would stock shares on the New York Stock Exchange. It is also possible for them to speculate on movements in this virtual commodity just like they would on the exchanges themselves. In fact, speculation on this “asset” has become a popular pastime amongst investors all over the world. They use the volatility of the exchanges as a barometer to determine how volatile the value of this virtual currency is likely to be. Therefore, they are able to make better decisions concerning when to enter the market and when to exit.
The biggest drawback of using an ETF is that it will not allow an individual to purchase shares directly. There are several open-end exchange-traded funds that allow investors the ability to buy shares in the currencies of the host country. However, most of these fund providers require that the purchase is done through an account with the fund itself. This limits investors to trading in only the currencies of the host country. If they want to speculate on the volatility of other currencies, then they must open an account with the exchanges themselves.
There have been several proposals to create an ETF for the trading of bitcoins. However, so far the most popular proposal revolves around the formation of an exchange-traded fund that would allow investors to invest in the volatility of this digital currency. There are two proposals currently under consideration. The first would have a limited time frame for approval and the second is meant to create a platform where numerous currencies can be traded. With the increasing popularity of this new type of trading, one thing is certain – there will be more people applying to create an ETF related to the bitcoin as the years go by.