ETFs Provide Ownership Rights to BTC
One of the earliest misconceptions surrounding Bitcoin spot ETFs is that they grant individuals the right to own the actual cryptocurrency. However, this is not the case. A spot BTC ETF is essentially a fund that invests in the largest cryptocurrency, and the value of its units/shares is tied to the price of BTC. There is no guarantee of a direct exchange of shares for digital assets.
Spot Bitcoin ETFs Do Not Guarantee Profit
Every investment comes with risks and no guarantees. Whether you invest in Bitcoin, Ethereum, Pepecoin, or any other altcoin, there is always the possibility of either gaining or losing money. If you purchase a cryptocurrency and its value increases, you will make a profit. If it decreases, you will face losses. It’s as simple as that.
The same principle applies to ETFs. If you buy ETF shares and they decrease in value, you will lose your hard-earned money. On the other hand, if the share price rises, you can make a profit. To illustrate, let’s consider some examples.
Spot Bitcoin ETFs were launched on January 11th, with the Grayscale fund (GBTC) being one of them. From January 11 to January 23, its shares experienced a 21% decline in price. Consequently, anyone who bought and held these securities during that period could have lost a fifth of their investment.
Source: tradingview.com
However, from January 23 to March 13, GBTC shares began to appreciate, gaining over 91%. This means that those who bought shares during this period could have nearly doubled their wealth.
Source: tradingview.com
ETFs Primarily Serve Investment Purposes
Bitcoin spot ETFs can only be used for investment purposes. You can purchase shares on trading platforms such as NYSE Arca and NASDAQ. However, ETF shares are not suitable for use as currency or a medium of exchange.
In essence, spot BTC exchange-traded funds are similar to derivatives in financial markets. They are primarily used for earning profits and do not confer any ownership rights in the underlying company or cryptocurrency.
ETFs Are Not Exclusive to Major Investors
One of the anticipated advantages of spot Bitcoin ETFs was the potential for a significant influx of capital into the cryptocurrency market. This was expected to address the legislative restrictions that prevent certain individuals from buying BTC. The introduction of spot Bitcoin exchange-traded funds aimed to resolve this issue.
However, just because big players in the crypto industry can now get involved does not mean that regular individuals cannot purchase ETF shares. The initial demand for shares of the iShares Bitcoin Fund (IBIT), a fund managed by the largest investment company BlackRock, was predominantly created by retail (non-professional) investors.
ETF Volatility Does Not Mirror Bitcoin Volatility
Although spot Bitcoin ETFs track the price of BTC, it does not mean that the assets possess the same volatility. In reality, the share prices of different exchange-traded funds do not change identically. So, what actually happens?
Firstly, tracking is not absolute, and errors or delays can occur. For instance, the Ishares Bitcoin Trust calculates its values based on the CME CF Bitcoin Reference Rate – New York Variant, an index computed daily using trading data from major cryptocurrency exchanges. As a result, there can be discrepancies between the ETF share price and the market price of Bitcoin within a trading session.
Secondly, an ETF is a fund, which means money is allocated to asset managers.
ETFs Are Not Beginner-Friendly
An important myth to debunk is that Exchange Traded Funds are complex and risky. In reality, the process is straightforward and manageable. It involves far fewer technical intricacies compared to purchasing actual Bitcoin, where one needs to navigate aspects like seed phrases, public and private keys, and crypto wallets.
Trading ETF shares is essentially similar to trading shares of regular companies on the stock exchange. You create an account, deposit funds, and go through the necessary registration procedures. Voila! The existence of this myth can largely be attributed to the potentially confusing name “ETF.” However, upon closer examination, there is nothing extraordinary – just a company or fund investing in a specific asset or instrument. In the case of spot Bitcoin ETFs, the fund invests in the flagship cryptocurrency.
Conclusion
The existence of myths surrounding exchange-traded funds can be attributed to the fact that potential investors, out of habit, fail to fully understand what they entail. Consequently, fear arises, and as we know, fear tends to magnify things.
Please note that this material and the information contained herein should not be considered as individual or investment advice. The opinions expressed by the editors may differ from those of the author, analytical portals, and experts.