Distinguishing between Blockchain ETFs and Bitcoin ETFs: Understanding the contrast
Decipher the difference: Blockchain ETFs versus Bitcoin ETFs. Delve into the nuances of each to grasp their distinctions.
Comparing Blockchain ETFs and Bitcoin ETFs
As Bitcoin has solidified its position in the investment landscape, so too have Bitcoin and blockchain-centered exchange-traded funds (ETFs), attracting the attention of investors. The emergence of these ETFs offers a gateway for a wider range of investors seeking exposure to digital assets without the complexities of direct asset management.
Blockchain ETFs, classified as exchange-traded products (ETPs), present a diversified exposure to the broader blockchain industry, spanning sectors such as finance, supply chain management, and healthcare—industries being transformed by the technology. Conversely, Bitcoin ETFs offer a more focused approach, providing direct exposure to Bitcoin's price movements, the most renowned cryptocurrency.
These funds either possess Bitcoin directly or mirror its price through futures contracts, granting investors a means to profit from Bitcoin's price appreciation without the need to hold the cryptocurrency themselves.
Despite their distinctions, media often conflate the terms "Bitcoin" and "blockchain," leading to potential confusion between blockchain ETFs and Bitcoin ETFs, despite their differing financial characteristics.
Bitcoin ETFs
Most Bitcoin ETFs endorsed by the SEC trace Bitcoin's price through futures contracts traded on the Chicago Board Options Exchange. They achieve this by holding futures contracts.
In October 2021, the ProShares Bitcoin Strategy ETF (BITO) launched as the initial Bitcoin futures ETF, monitoring Bitcoin futures contracts linked to the future cryptocurrency price.
Since then, various other funds have entered the market to offer investors exposure to Bitcoin without direct ownership, such as the Valkyrie Bitcoin Strategy ETF (BTF), the VanEck Bitcoin Strategy ETF (XBTF), and the Simplify Bitcoin Strategy PLUS Income ETF (MAXI).
Certain funds adopt diverse crypto-related strategies. For instance, the ProShares Short Bitcoin ETF (BITI) permits investors to short Bitcoin, profiting from its decline rather than its rise. Some ETFs invest in blockchain firms and Bitcoin futures, exemplified by the Global X Blockchain and Bitcoin Strategy ETF (BITS), which blurs the distinction between these ETF categories.
For years, U.S. regulators rebuffed proposals for funds directly holding Bitcoins due to concerns over fraud and market manipulation, also extending these concerns to Tether and other stablecoins.
However, the SEC relented in 2023 following a federal appeals court ruling that deemed the regulator's justification for rejecting ETF applications by asset manager Grayscale Investments insufficient. Subsequently, the SEC greenlit the first Bitcoin spot ETFs, totaling 11, which commenced trading in January 2024.
Blockchain ETFs
Blockchain ETFs primarily monitor the stock prices of companies that have invested in blockchain technology within their portfolio, without focusing on a specific cryptocurrency or entity. Blockchain, as a technology, isn't tethered to any particular company or product.
"Bitcoin relies on blockchain, but blockchain doesn't rely on Bitcoin," stated Christian Magoon, CEO of Amplify ETFs, which claims to be the largest ETF centered on blockchain. The scope of blockchain investments encompasses various sectors, including IBM's blockchain engagements with the automotive industry, wineries, and healthcare.
Among the firms commonly included in blockchain ETF portfolios are Visa, which explores blockchain applications to streamline payment processes, and Honeywell, a manufacturing company utilizing blockchain for supply chain management.
On the technological front, Nvidia, the leading graphics processing unit provider, supplies hardware crucial for cryptocurrency mining and blockchain operations, making it a staple in blockchain ETFs.
Distinguishing features of Blockchain and Bitcoin ETFs
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How do Bitcoin and Blockchain ETFs respond to technological and financial changes?
Bitcoin ETFs typically react to developments impacting the cryptocurrency market, often distinct from broader technological or financial market trends. Factors such as regulatory updates, institutional adoption, or economic events within the cryptocurrency sphere can influence Bitcoin's price and investor sentiment toward cryptocurrencies.
In contrast, Blockchain ETFs tend to align more closely with trends in the broader technology and financial markets. They represent investments in various sectors of the blockchain technology industry, thus responding to changes within these sectors.
How can you invest in Blockchain ETFs?
Blockchain ETFs are accessible through many securities brokerages, such as Fidelity, E*Trade, and Robinhood. To find these funds easily, utilize your brokerage's ETF screener and search for "blockchain." This will generate a list of funds for further research to determine their suitability for your investment strategy.
How can you invest in Bitcoin ETFs?
Investing in Bitcoin ETFs is akin to investing in other ETFs and can be done through your preferred brokerage. Use your brokerage's ETF screener to search for terms like "Bitcoin" or "crypto" to locate funds related to cryptocurrencies. Subsequently, delve into each fund's management and investment approach to refine your selection.
