August 15, 2024 The world of cryptos has never been short of exciting developments, and 2024 is no exception. One of the most important news events in the crypto-verse this year was the highly anticipated approval of crypto ETFs.
This exciting development started in January of this year with the launch of Bitcoin ETFs and continued into May when Ethereum ETFs were also approved. Together, they were one of the main catalysts for the rising crypto markets we’ve seen this year, as they symbolize the further adoption of cryptocurrencies by traditional financial institutions and other mainstream investors.
Why is that exactly? What does it mean for the future of BTC, ETH, and the crypto markets?
In order to fully understand the magnitude of these new crypto ETFs and others who might join them in the future, let’s delve into the world of ETFs and cryptocurrencies.
We’ll begin by explaining what ETFs are, how they work, and why they are such a crucial stage in the ongoing development of the crypto world. Then, we’ll cover their expected effects on the crypto markets and their main advantages and disadvantages as an investment vehicle. Later, we’ll go through the different ETFs that are currently available, along with other valuable tips for dealing with these financial products.
By the end of this blog post, you’ll have a sufficient understanding of what crypto ETFs are and how they are expected to affect the crypto markets as a whole. Our goal here is to give you all the data you need to make an informed decision on whether crypto ETFs should be part of your portfolio and, if so, in what capacity, as well as some input into your overall crypto trading strategies for the future.
At this point, we must remind you that the information in this blog post is intended solely for educational purposes and should not be considered a call to action or financial advice. Traders must consider their financial status, trading goals, and risk tolerance before employing any crypto trading strategy. Cryptocurrency trading involves inherited risks; consulting with a qualified financial advisor before making decisions is highly recommended.
As its name implies, an exchange-traded fund, or ETF, is a financial instrument traded across traditional exchanges, similar to common stocks. Simply put, it enables investors to track and trade assets like commodities, equities, and stock indexes without holding them directly.
While there are many different types of ETFs, this article will mainly focus on recently approved ones, like the spot ETF. We’ll discuss how these new ETFs are currently affecting the market and their potential influence on the future of the crypto markets. (More on the subject later on.)
In most cases, ETFs are managed by their issuer, who is responsible for keeping the price of the ETF in line with the actual price of the underlying asset or assets. As compensation for their work, ETF managers charge the ETF holders a management fee, which varies depending on the issuer, place of registration, and other factors.
Like many other assets traded across traditional markets, ETFs are highly regulated and must be approved by local authorities before publicly trading in their jurisdiction. With the recent approval of both BTC and ETH ETFs in many heavy-weighted markets, most notably the U.S, Canda, Germany, Brazil, Australia, and Switzerland, investors can gain exposure to the crypto markets through ETFs.
ETFs allow traders to invest and trade cryptos without holding them directly. This means that now, for the first time, traders can buy and sell cryptos through traditional exchanges without the need to open an account on a crypto exchange, maintain a crypto wallet, etc.
While this might sound like something other than groundbreaking news for those already actively trading in various crypto exchanges, it is a massive development for traders interested in cryptos but reluctant to act upon it due to technical difficulties or risk aversion.
This is especially relevant for big, highly regulated financial institutions like banks and hedge funds, where there are strict restrictions on which assets they are allowed to trade and how to trade them.
Perhaps crypto ETFs are best viewed as a bridge between the traditional financial world of fiats and the new financial order that cryptos offer. By creating this connection between the two ecosystems, governments and regulators worldwide are showing a vote of confidence in the future of cryptos and finally giving them recognition as a viable means of investment after many years of antagonism.
In the traditional financial world, there are many different variations of ETFs and an even larger number of similar products, known by their general term ETP (exchange-traded products). Out of the bunch, these are the four kinds of ETFs that are currently available for cryptos:
For more specifics, here are lists of all of the Bitcoin ETFs and Ether ETFs that are available on the market today.
Just as we’ve seen in bitcoin since the beginning of the year and ETH since the launch of its ETFs, crypto ETFs have a proven potential of creating massive inflows into the crypto ecosystem from deep-pocketed institutions and other investors who weren’t dealing with cryptos at all beforehand.
In general, this process is only expected to amplify itself as more individuals, institutions, and even governments look to hedge themselves from the fiat financial system. This will elevate demand and push Ether and Bitcoin to new all-time highs.
This surge of new money inflows into the crypto markets also has some other, less positive side effects. Most notably, the entrance of new, deep-pocketed investors into the ecosystem makes cryptos much more sensitive to changes in macro conditions and other financial markets.
As you can see from the price charts of BTC and ETH since the launch of their ETFs, inflows derived from ETFs are only one part of the equation. Other macro factors, like sticky inflation and rising tension in the Middle East, also affect the markets, for good or bad.
Traders must remember that while ETFs and others that might join in the future (SOL and ADA are strong candidates) are undoubtedly positive developments, their effects on the market are still somewhat limited.
From what we can see now, ETFs create some buying pressure that supports prices at a certain level. It doesn’t necessarily mean it is enough to sustain long-term bull markets alone. BTC, ETH, and all smaller crypto projects are still volatile, with inflows and outflows expected to occur frequently, making the crypto markets exciting.
The advantages of crypto ETFs are undeniable from the perspective of traditional institutions and investors, as it enables them to gain exposure to cryptos while complying with local rules and regulations. From their perspective, there are inherited risks in trading cryptos on less-regulated crypto exchanges.
For those of you who are actively trading cryptos or already have the proper infrastructure (exchange account, hot and cold storage solutions, etc.), there are no real advantages to trading cryptos through an ETF. If you can technically do so, most experts agree that holding crypto directly without third-party associated commissions is a more sustainable way to invest in cryptos.
The bottom line is that for those who are already active participants in the crypto markets, the launch of crypto ETFs is exciting, not necessarily due to the prospect of investing in them directly, but rather their overall impact on the crypto-verse.
Except for elevated trading volumes and liquidity due to the surge in inflows we’ve previously discussed, these new ETFs also have a significant symbolic meaning. Many experts claim that the approval of crypto ETFs by major government entities across the globe is the final step for cryptos to become a regulated and legitimate investment vehicle, exactly like traditional commodities such as precious metals, energy, and stocks.
In other words, crypto ETFs are yet another milestone on crypto’s journey toward being recognized by individuals, governments, and institutions as a legitimate and realistic substitute for our fiat financial system.
As we covered in detail in this blog post, while the launch of BTC and ETH spot ETFs might not change much for those actively trading cryptos, it is a hugely positive development for the crypto world.
With more crypto ETFs expected to be approved shortly, this is an essential milestone for cryptos to become a viable alternative to the fiat financial system or reach complete mainstream adoption.
This creates a more liquid and generally improved trading environment for crypto traders, offering a whole new range of opportunities to capitalize on.
Here at Cornix, we equip you with all of the tools, resources, and step-by-step guidance that you need to exploit this opportunity to the maximum extent successfully. With a two-week no strings attached free trial, there is no better time than now to start a new, exciting chapter on your crypto trading journey.
