1.What is an ETF?
Hey guys let me tell you about ETF today. Exchange Traded Fund as we call it (Abbreviated as ETF) - stands for an index fund whose shares are traded on the exchange. In practice, ETF is a type of security that serves as certificate for a portfolio of stocks, bonds, commodities, or cryptocurrency. The price of such stock follows an index based on certain underlying assets. You may have heard before, in case you haven't I will elaborate. To register the ETF in USA, the provider has to submit an application to securities and exchange commission (SEC). Last one classifies shares of such funds as securities.
2.How different is ETF from an investment fund?
As some of you may know, unlike an investment fund (i.e. mutual fund) with an ETF you can do the same kind of operations as with shares in stocks trading. Also, a point to outline here is that transactions with ETF shares can be made during the whole trading day and the price may vary depending on the ratio of supply and demand as well as the activity of players in the market. Having that in mind, ETF shares are usually more liquid than investment fund units. The latest ones most commonly traded in a country of residence of such funds. Simultaneously, the exchange-traded investment funds may be traded on a foreign exchange platforms. Good news is that with ETF`s you can do margin trading as well. Since ETFs are traded as stocks, net worth is not calculated daily as it ultimately is with an investment fund. To highlight an important remark I will say that the market value of such assets may be higher or lower than net worth. Net Asset Value (NAV) is defined as the price of investment fund or ETF per share. Lets now look into how the share fund is worked out. The amount of the share of the fund is calculated by dividing the average cost of all securities in portfolio (taking out all liabilities) by the number of such assets in circulation.
3. Why is it so that crypto enthusiasts's attention is always drawn on ETFs?
ETF is a more or less familiar tool for representatives of the traditional finance world. Such products are becoming known very quickly and their value seem to be growing from year to year. To invest in Bitcoin-ETF, market players do not need to create a wallet, register on the digital assets exchange. They don't even have to worry about safe storage of funds, etc. In case you didn't know, the investors are not exposed to risks of hacking trading platforms, or fraudulent activities by dishonest owners of exchanges, phishing attacks. Consequently, these tools may attract interest of traditional investors who do not wish to get into too much details of technical aspects. There are rumours that Bitcoin-ETF will certainly attract large investments to the cryptocurrency market, and this will ultimately contribute to growth of its capitalisation, as well as the massive adoption of new assets. For instance, an alternative opinion is being announced by co-founder of BlockTower cryptocurrency hedge fund, who seem to be convinced that main driver of the next mid-term race in Bitcoin price will be the inflow of institutional investors. According to Paul's belief - barrier can be seen is the lack of reliable solutions for storing digital assets focused on the market’s “whales”. Chief Executive of limited company "Iron Wood ltd" Michael Stratton is convinced that if the SEC approves cryptocurrency-based ETFs, large investment companies and funds, including Fidelity and Ameriprise Financial, will certainly enter this market.
4. Why are some against Bitcoin-ETF?
Many well-known representatives of the cryptoindustry are sceptical about the exchange-traded funds. One of them is a well-known trader and analyst Ton Weiss in the crypto-community who shares his vision. Specifically he believes that price of Bitcoin will not necessarily increase after the launch of an ETF based on it.
Another bit of information comes from evangelist Andreas Antonopoulos who shares his vision on the the subject and refers to such funds as a “terrible idea”. According to him, because of the ETF, the market is likely to become more centralised and subject to aggressive manipulation by institutional investors. A fair bit of critique to add at this point. Criticism of the Bitcoin-ETF was made by the famous cryptographer Nick Sabo. According to his belief - such funds may be more harm than good. To share his broad vision with us he quoted the following statement which we can take on board:
“I am not lobbying for an ETF. They can create more problems than values. Recent Bitcoin sales have thrown out or soon will throw out a lot of ignorant people. We do not need new ones in their place.”
The creator of Ethereum, Vitalik Buterin, is convinced that cryptoindustry needs not so much exchange funds as practical and useful applications.
5.What companies want to run Bitcoin ETF?
It has been noticed that companies such as VanEck, SolidX and Chicago Board Opinions Exchange have been making remarkable amount of efforts to launch ETF. Specifically, these companies are regularly trying to convince the SEC that the market is “set up and ready to go” for such financial products. Since we managed to touch upon market maturity, we can draw a parallel on how the index is created. As we know, there are two types of indexes: Single (which contains BTC only) and multi index. So in simple terms, I will illustrate how the process works: VanEck creates the MVIS Bitcoin, US OTC Spot Index based on bitcoin pricing data supplied by Genesis Trading, Cumberland and Circle Trade crypto dealers. The company plans to use this index in Bitcoin-ETF. Hopefully, this enriches you with something new which you did not know. Amongst the current plans of Chicago Board Options Exchange they are also thinking of initiating six ETFs at once. Their distinguishing feature will be futures as the underlying asset. However, the conservative SEC are not rushing to approve applications for the opening of Bitcoin-ETF, as they are wise to the fact that market can be easily manipulated. Moreover, in August last year few applications have resulted in rejections by Commission for the opening of the ProShares Bitcoin ETF and ProShares Short Bitcoin ETF. For instance,applications from Direxion and GraniteShares are in that list. Shortly before that in July, the SEC for the second time rejected the application of the Winklevoss brothers for the launch of Bitcoin-ETF. This highlight the point that it may take time before the process of approval to launch BTC ETF will become faster and smoother. Many companies will be looking forward for better times to come in the near future. Not only rejections were causing issue of product release, but the delays of launching ETF. For example, In the autumn of this year,“BlackRock” has delayed ETF launching until they saw that the industry was mature enough. Shortly before that, Barry Silbert's Grayscale Investments company withdrawn the application for the launch of the exchange fund.
6. What is a ETP?
By definition ETP is a financial instrument. It is mainly used for trading purposes on the stock exchange. Cool thing that it tracks the dynamic growth of a specific base index, which can be based on stocks, commodities, derivatives or cryptocurrencies.
The above considered ETF is a variable of the product which is traded on the stock exchange.
The ETP category also includes :
- Closed-End Funds - they are public traded investment companies which are listed on the stock exchange as stocks. Such funds attract the necessary amount of capital only once through an IPO, issuing a fixed number of shares.
- Exchange-trade derivative contracts - standardised derivatives, such as futures and options traded on organised plots.
- Exchange Trade Notes (ETNs), which are debt securities by nature. Exchange-traded certificates and Exchange-traded currencies / commodities (ETCs) also fall into this category.
An example of a trade product is Amun Crypto Basket. The core of the ticket is under the ticker HODL5 which is stands upon an index and is based on several of the most liquid currencies weighted by market capitalisation.
7. What is a ETN (Exchange Trade Notes?)
By definition the (ETN) exchange trade notes are unsecured debt obligations, the value of which is tied to the price of a certain asset (a basket of stocks, bonds, commodity futures or cryptocurrencies). So can anyone guess what influences the value of ETN? Well of course it is the credit rating of the company that produces such tools.An example of such tools in the context of the cryptocurrency market is stock exchange notes on Bitcoin from the Swedish company XBT Provider, which allow investing in a basket of 5 or 10 assets.Don't ever underestimate the power of the credit ratings, as the price of an exchange note may fall because of a small decrease in one's rating, even if there are not changes in the underlying index. That's just to say how important is to look after your credit ratings and manage it well. ETN's are also in the trade patter of markets, however, their main unique point which makes them different from ETF is that that the issuer of the note is not required to buy and hold any assets to track the price of the index. Working with notes can also be risky. For instance, one of the major risk is related to the probability of default of the issuer.Few ETN's are following on to this index with the leverage ratio which in essence means that an element falls into formal obligation to pay shortly for when an index rises or is dropping down.In August, USD-linked bitcoin notes appeared in the Nasdaq Stockholm listing. However, these ETN's fell out of favour with the SEC, which found that the XBT Provider sowed confusion with terminology. The Commission ordered the suspension of trade in these instruments in the US market.