From Hong Kong to The New York Times Daily podcast, news that Bitcoin ETFs have been approved has been popping up everywhere in recent weeks. We're here to give some background on what ETFs are and why they're actually a good sign for crypto investors everywhere.
A primer on financial markets
What makes a financial market?
Financial markets are simply another place where people meet to buy, sell, and trade various goods. Exchanges are where financial instruments—or securities—are bought and sold. The most recognizable type of financial market is probably the stock market, where stocks or shares—ownership of a tiny fraction of a large company—are exchanged. Other parts of the financial market specialize in commodities, bonds, foreign currencies, and more. Crypto is one such specialty, so crypto exchanges have come to make up their own, newer section of the overall financial market ecosystem.
How do people invest in financial markets?
For the most part, anyone can invest in things like stocks, bonds, and more. It's possible to do this as an individual through a broker. While building up a healthy and diverse portfolio on your own is possible, for most individuals it's too time-consuming and complex to manage a full range of investments day-to-day.
That's why many people choose instead to invest in things like mutual funds. Mutual funds are pooled investments: large groups of people deposit into the fund, and money managers buy, sell, and keep an eye on financial instruments on behalf of the group.
What are ETFs?
ETF stands for exchange-traded funds. Like mutual funds, ETFs give investors a stake in a pool of managed investments. More similar to stocks, however, ETFs can be traded at any time throughout the trading day, not just after markets close. This means investors in ETFs get more flexibility: their investments are more liquid and they more accurately reflect actual asset prices as they fluctuate based on supply and demand.
What is a Bitcoin ETF?
A Bitcoin ETF is exactly what it says on the tin: it's an ETF that uses Bitcoin as its underlying asset instead of stocks. Spot Bitcoin ETFs are the biggest news lately, as they require asset managers to actually hold Bitcoin.
The approval of spot Bitcoin ETFs—first in early 2024 by the United States Securities and Exchange Commission (SEC) and more recently by Hong Kong's Securities and Futures Commission—have been welcomed by both the crypto space and broader financial markets.
The fact that major regulators are opening the way for Bitcoin to be integrated into traditional financial markets is a signal that crypto has gained the legitimacy it has been seeking since the beginning. This newfound legitimacy and accessibility also means a new wave of investment—in short, more demand for Bitcoin from big players. Since there is a limited supply of Bitcoins in the world, this rising demand also means rising prices.
Where are Bitcoin ETFs available?
Currently, the SEC has approved 11 spot Bitcoin exchange-traded funds to operate in the US. Hong Kong recently approved Bitcoin as well as Ethereum ETFs, and the UK, Australia, and Thailand are all moving in a similar direction.
Why should Europeans care about Bitcoin ETFs?
One notable region missing from the list above is the European Union. European regulators are playing much more conservatively when it comes to finances and crypto in particular. Unfortunately there is no real Bitcoin ETF on the horizon for investors in Europe, though the European Securities and Markets Authority (ESMA) is considering baby steps.
Still, it's good to keep in mind that the crypto market is a worldwide one. When Bitcoin prices rise thanks to actions in the US or Hong Kong, Bitcoin prices rise for investors everywhere.
Should I invest in Bitcoin ETFs?
Ultimately, this is a decision you need to make for yourself—Invity isn't here to provide investment advice. What we can say, though, is that ETFs might be a good way for more conservative investors or those intimidated by technology to benefit from exposure to crypto.
For other investors, ETFs simply add a barrier between you and your digital money. User-friendly options like the Invity app make it straightforward to buy, store, and manage your coins on your own. Whatever you decide to do with your newfound knowledge about Bitcoin ETFs, there's one thing for certain: crypto isn't going anywhere.
