A Bitcoin ETF Was Approved…kinda

TL;DR

• The Bitcoin ETF everybody needs proper now = a ‘spot’ ETF. The Bitcoin ETF we’re getting as an alternative = a leveraged futures ETF. (The latter is way riskier for traders).

• Okay, however why the ‘drama’? Effectively, within the US, the SEC has repeatedly denied any purposes for a Bitcoin ‘spot’ ETF – saying they’re too dangerous to be allowed.

• However they’ve simply accepted a leveraged Bitcoin futures ETF – the riskiest beast of all of them!

Full Story

The Bitcoin ETF everybody needs proper now = a ‘spot’ ETF.

The Bitcoin ETF we’re getting as an alternative = a leveraged futures ETF.

…cool, what does that even imply??

A spot ETF invests in Bitcoin ‘on the spot’ – you purchase shares within the fund → the fund makes use of your cash to purchase Bitcoin.

A Bitcoin futures ETF buys ‘futures contracts,’ or agreements to both purchase or promote Bitcoin at set worth on a particular date sooner or later.

(Principally, you are inserting a wager on the long run worth of Bitcoin).

Why do that? Sometimes to hedge your bets.

E.g. Say you assume BTC goes to go up in 28 days time…however being the good investor you might be, you understand nothing is for certain on this world, and BTC might really go down.

So you purchase a contract that ensures somebody will purchase a bit of your BTC at right now’s costs.

(So if BTC have been to drop, you’d nonetheless lose out – however not as badly).

These bets are riskier, since you’re agreeing to purchase/promote on a set date, which suggests if issues do not go your approach, you possibly can’t simply wait issues out.

Leveraged Bitcoin Futures ETFs take that threat and dial it up.

They are saying ‘hey, why do not we take out some loans, so we will double the amount of cash we’re betting right here?’.

Which is nice if the bets being positioned find yourself being appropriate! However harmful in the event that they miss – as a result of they double any losses.

Want us to make it actual? Okay, consider it like this…

Say you purchase $10k price of Pokemon Playing cards, pondering they will develop in worth.

(Dangerous, however hey – you do you).

You are so certain of your self that you simply then take out a $10k mortgage, to purchase much more Pokemon Playing cards – bringing your complete funding to $20k.

Subsequent factor you understand, the worth of the playing cards goes to zero – and you have not solely misplaced $10k of your personal cash, however you now owe your lender $10k.

Level is: with out the mortgage, the worst that would occur is you flip your funding into $0. With the mortgage, you possibly can flip it into -$10k.

(Leverage brings threat).

Okay, however why the ‘drama’?

Effectively, within the US, the SEC has repeatedly denied any purposes for a Bitcoin ‘spot’ ETF – saying they’re too dangerous to be allowed.

However they’ve simply accepted a leveraged Bitcoin futures ETF – the riskiest beast of all of them!

¯_(ツ)_/¯