In the past years, we have seen Bitcoin at its peak, and it almost broke its all-time high. Since its massive popularity, the crypto market registered a significant demand for an actual Bitcoin ETF in simple terms exchange-traded fund. This is simply because more people are now interested in investing their money into the crypto market. On the other hand, a number of investors may recognize the blockchain as the technology behind popular cryptocurrencies, like Bitcoin and Ethereum. However, its application also extends to various industries and services.
Let’s understand the basics of Bitcoin ETF and Blockchain ETF to get a clear idea to invest your money. Before proceeding further, let’s understand in brief about ETF.
Exchange Traded Fund (ETF): What is it?
An Exchange Traded Fund can be described as an investment carrier that is publicly traded, just like a stock, but that monitors the performance of an index, not any organization. An ETF is simply an opportunity for investors to obtain the value of an underlying asset, like, gold, other metals, oil, etc. An ETF is usually traded on a conventional stock exchange, and their value rise as asset’s prices rise and vice versa.
In the early 1990s, the first ETF was launched and soon became a popular way for various retail investors to invest in a combination of assets at once, commonly termed as a basket. They are extremely popular because exchange traded funds offer the best attributes of two highly coveted assets. It combines the benefits of diversifying investment funds while mimicking the ease of trading stocks.
Bitcoin ETF: What is it?
The Bitcoin ETF is an exchange traded fund that monitors the price of Bitcoin and allows investors to buy or sell BTC throughout the day. ETFs can be cash or asset settled. In simple terms, when you withdraw money, you get either fiat currency or actual Bitcoins. With Bitcoin ETFs, traditional investors can buy Bitcoin indirectly through the usual trading platforms they are familiar with.
Bitcoin ETFs can be an ideal entry point for institutional investors who want to enter the cryptocurrency market but have not been able to do so for a number of reasons. Most hedge funds cannot hold coins because they cannot be adequately insured. Any drastic price fluctuations can lead to the loss of credibility and profit targets.
Proper regulation of cryptocurrencies remains disappointing. This has been the main reason why institutions have not been able to enter the market in large numbers. ETFs, on the other hand, are an already well-established and well-regulated instrument. Finally, we have a liquidity problem. Even if the stock market has enough capacity, these institutional investors want to earn hundreds of millions of dollars by buying and selling orders. As such, the ETF can provide the liquidity needed to meet these requirements.
Blockchain ETF: What is it?
Long before the blockchain ETF, blockchain technology came into existence. It was set up with an idea to reduce the risk of fraud, corruption, or various cases of data breaches by the central authorities. In essence, this makes it almost impossible for all parties involved to manipulate information through data manipulation. Keeping open general ledger records solves this problem.
Its model is quite simple; it involves a network of independent computers that are connected to a shared database and runs on the same software system. Whenever some new information becomes available, it is stored in the open general ledger as a data block. Everyone has access to an identical record. Hence, before updating all the data sets, the system makes sure to check every single data file and authenticates the validity of the incoming information.
By linking the data and making it available to everyone, the blockchain eliminates the risk of a single party violating it. It also simplifies and automates processes that may have been inefficient in the past.
Bitcoin or Blockchain: The True Difference
In simple terms, blockchain can be explained as a technology that supports Bitcoin, a cryptocurrency, but you will be surprised to know that bitcoin is not the only blockchain distributed general ledger system version in the cryptocurrency market. You will find a number of cryptocurrencies that possess their own blockchain and distributed general ledger architecture.
Meanwhile, the decentralization of technology in the Bitcoin network has also led to a number of cracks or forks, creating general ledger shoots where some miners use a blockchain with one set of rules and others with another set of rules. As blockchain is the technology behind Bitcoin hence, Bitcoin was the first example of how a blockchain works, and without a blockchain, it would not be Bitcoin. This is the main reason you hear these two words very often, and sometimes people mistake one for the other. To sum up, blockchain and Bitcoin are not the same things.
Bitcoin can be defined as a decentralized digital currency or a peer-to-peer electronic payment system where users can transfer bitcoins anonymously without the intervention of a third party. It’s not the only Bitcoin that is powered by blockchain, but there are various cryptocurrency networks that are powered by blockchain technology. Although Bitcoin uses blockchain technology to trade digital currency, the blockchain is more than just Bitcoin.
Bitcoin ETF and Blockchain ETF are both in constant need of improvement to face future market trends. In order to break their last time high, they need to work on their weak points. In terms of investments, there is no denying the fact that these have become the next big thing in the cryptocurrency investing sector. A number of investors are interested in investing in these ETFs and generate a significant profit. At last, it all boils down to the investor’s requirement and their expectations from the investment. Choose wisely and invest wisely!