3 Things to Keep in Mind While Buying Bitcoin ETF

  • January 16, 2024
  • Jennifer Moore
3 Things to Keep in Mind While Buying Bitcoin ETF

The Bitcoin ETF was in the recent headlines as the SEC approved it. A spot Bitcoin ETF will act as a connector between the domains of cryptocurrency and traditional finance. Therefore, many experts are now optimistic about crypto’s approval as they are anticipating that crypto’s linking with traditional finance can increase its accessibility to a large extent. However, new investors should keep three important points in mind before buying a new ETF. This is because it will affect their profitability and financial condition. 

Performance of Bitcoin ETF

There is no doubt that Bitcoin’s prices were surging above $40K till very recently. However, while investing in Bitcoin ETF, new investors must closely observe the performance of Bitcoin ETF. In some cases, tracking errors happen in which a difference props up between the performance of the ETF and the underlying assets such as Bitcoin. These errors usually happen with the first batch of Bitcoin ETFs. The new ETFs can resolve this problem by holding Bitcoin directly. Moreover, these Bitcoin ETFs will have Bitcoin and can reduce tracking errors.

The existing ETF structure can minimize some of the complexities by managing storage and ownership, However, investors should also be aware of the basic fact that Bitcoin ETFs are not entirely immune from market volatility. This is because the cryptocurrency market is volatile, and ETFs are invariably linked with it. 

Fees of Bitcoin ETF

The individual investors of Bitcoin ETF must be aware of the fees of Bitcoin ETF. Recently, the Securities and Exchange Commission (SEC) has approved eleven distinct spot Bitcoin ETFs. Many Bitcoin ETFs are going to launch unique marketing campaigns to attract new investors and their main theme will be low fees. In such a scenario, the investors should be cautious, because lower fees may cause stagnation too by attracting a lot of investors in one go. 

The major Bitcoin ETF issuers have also published their initial fee structure, such that the expense ratios align with the traditional ETF expectations. Currently, investors should try to choose an ETF with the lowest fees. However, they should try out ETFs that promise fee waivers and offer discounts just to attract new investors. In case, any investor is in a hurry, then it is better to start looking for a Bitcoin ETF with the lowest fees, because once the promotional phase is over, the discounts may end too.

Analyzing both Bitcoin and Spot Bitcoin ETFs

Bitcoin ETFs and directly buying Bitcoins are two different things from the perspective of investors. Therefore, this point is very important for new investors. It is a fact that investors putting money into Bitcoin ETFs may not own any Bitcoin at all. Secondly, the asset management firms may charge fees at their discretion for managing and trading Bitcoin ETF. Thirdly, people who choose to directly buy Bitcoin mandatorily need to pay a transaction fee. This is because there may not be any additional fees for investment management.

The notable advantage of owning Bitcoin through an ETF is that investors can track and hold their Bitcoin ETF in the same brokerage account just like their other investments. Spot Bitcoin ETFs are more advantageous than directly buying Bitcoin because it has lower operational risks, direct Bitcoin holding, are easier to use, and have better liquidity. It can also offer potential tax benefits. 

Also Read- PayBitoPro Emerges as the Leading White-Label Crypto Exchange Provider in 2024

The Bottom Line

The approval of Spot Bitcoin ETFs by the SEC is an indication that the cryptocurrency market is evolving rapidly. Many experts believe that the popularity of cryptos may increase considerably after this move. There is no doubt that this move will ease access to Bitcoin’s prices. However, investors should also keep in mind the pros of Bitcoin ETFs, the fees associated with them, and most importantly, its overall performance. These three things can help investors to gain more by investing in Spot Bitcoin ETF. 

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