The Bitcoin ETF comes on the market, one of the best ways to invest in bitcoin.
Let’s look at the basics about ETFs. The name ETF comes from the words Exchange Traded Fund. This is an investment vehicle that is responsible for replicating the behavior of different assets or indices.
What is the benefit of investing in an ETF? The main advantage of this financial instrument is liquidity, but also a clear advantage of this financial instrument is flexibility.
ETFs can be purchased at different prices during the session, this is an advantage that other funds do not have.
It is important to mention that you can create an ETF on any type of asset, as long as the underlying is liquid. At this moment there are hundreds of ETFs in the financial market, the most marketed at this time are those of raw materials, currencies, fixed income, indices, among others.
According to its composition there are two different types of ETF:
Physical ETFs: In these the daily profitability of the underlying is offered, after buying the assets that make up the index. Assets in physical ETFs serve as collateral to EFT.
Synthetic ETFs: These replicate mathematically to the underlying. In this case, there will be counterparts that will provide daily profitability through a Swap. This is an exchange of money for profitability.
Most synthetic ETFs are collateralized, this means that they have a guarantee that they will respond in case of bankruptcy of the counterparts.
There are 4 factors that we have to take into account in order to invest in an ETF.
1) Liquidity: How much is sold and bought.
2) How is the subjection of the underlying, either with physical support or synthetic backup.
3) The guarantee: This exists on the part of the issuers.
4) TrackRecord: How well you have been able to replicate the behavior of the underlying ETF.
ETFs are tools that serve to diversify portfolios, having access to different assets.
Summary on the Bitcoin ETF: This is equal to a common investment fund, with the subtle difference that the asset can be bought and sold during the session, this ETF seeks to replicate the bitcoin price and that the investor can buy this asset without having to directly buy the cryptocurrency. On the other hand, the trust that the ETF has created guarantees us to have possession of the asset. For which investors provide institutional guarantee and liquidity.