Mariela is a former investment banking analyst and has been a cryptocurrency writer with LeapRate and Asktraders for the past two years
An exchange traded fund (ETF) is an investment vehicle that lets prospective investors enter the market without risk, as they do not buy the asset itself but just a basket of securities. An ETF tracks the movement of the investment, in this case Bitcoin, but it does not require the investor to buy the cryptocurrency. It is a passive form of investment. It mitigates risks while still allowing investors to experience profits and cryptocurrency trading. ETFs are usually used by investors for diversification strategies and risk-hedging.
Bitcoin is extremely volatile, and the cryptocurrency market is not under any uniform strict regulation as of now. This can prevent new investors from entering the market. However, when you opt to invest in Bitcoin-related ETFs, you can easily take part in a regulated environment. It is essential that you first find the best broker by doing a comprehensive comparison.
As a trader, you should know that in the UK, Bitcoin ETFs are passive investments. Here, the broker tracks the value of the Bitcoin. On the other hand, if an ETF is active, then the fund manager is the one who tracks the Bitcoins’ value. There are no fees to manage or track Bitcoin ETFs, even though you can actively trade them.
All ETFs are associated with an index, and the performance of the ETF depends on the performance of the index that it links to. In the case of a Bitcoin ETF, the index could be associated with the price of Bitcoin, or it could be a portfolio comprising mixed cryptocurrencies.
With Bitcoin ETFs, there is no need to worry about getting an e-wallet to store the virtual cryptocurrency or be concerned about the security of the wallet. An ETF helps make investing in Bitcoins more secure, as it is always associated with the price of the cryptocurrency rather than the cryptocurrency itself. With no exchange or wallets for hackers to access, the investment stays safe.
ETFs are among the safest investment vehicles. They do not involve digital wallets or trading a cryptocurrency. Once you invest in a Bitcoin ETF, you do not actually buy it. Instead, the investment is based one of the following:
Some of the advantages of investing in Bitcoin ETFs are as follows:
In addition, when you buy and sell ETFs and make a profit, you will have to disclose the earnings in your tax filings. Not only do you have to pay taxes in the UK, but you may also be liable to pay taxes in the country where the ETF is located.
While Bitcoin is a highly volatile currency, Bitcoin ETFs offer some security when it comes to investing. They are appropriate for individual traders as well as institutional traders, but it is imperative that an investor selects the right brokerage to help you access the security that you need. All types of investments, including Bitcoin ETFs, have risks that you should prepare for by adopting investment strategies to help mitigate those risks. As with any other investment type, you will have to put time and effort into becoming successful and use resources to learn continuously so that you can always stay motivated to improve your Bitcoin-related ETF trading strategies.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .