Published on December 6th, 2021
Bitcoin has become exceedingly popular in the investment avenues, but bitcoin exchange-traded funds are comparatively new to the block.
On the other hand blockchain, ETFs are just stepping into the market. In the news, you see the terms Bitcoin and Blockchain being used interchangeably.
So, it becomes normal for people to be confused between both of them even though they are two separate entities.
Blockchain ETF’s mainly keep track of the stock market prices of the companies that have invested in Blockchain.
Since Blockchain is more of a technology, it is not bound to any particular company or product.
Bitcoin requires blockchain, but the reverse is not true. This blockchain set up of investments is vast but is not aimed at any one sector.
For example, you can see IBM has partnered with shipping giant Maersk to use blockchain in the freight sector.
Most companies mention such details on their official site. E-commerce giant Overstock invested in blockchain through a Zero digital coin exchange and Medici ventures.
This makes all these companies popular with the Blockchain ETF’s. For example, ETFs’ Amplify Transformational Data Sharing ETF (BLOK) and Siren Shares Nasdaq NexGen Economy (BLCN) have added both the companies to their ETFs.
Most of the Bitcoin ETF applications that were submitted to the Securities and Exchange Commission have suggested that the price of bitcoin be tracked through the futures contracts traded on Chicago Board Options Exchange and through the CME Group.
This model involves the ETF’s tracking prices of Bitcoin through taking ownership of the futures contracts.
October 2021 saw the launch of the first bitcoin futures ETF- the Pro Shares Bitcoin Strategy ETF. Its purpose is to track the bitcoin futures contracts that are pegged to the price of the cryptocurrency.
This is after the Securities and Exchange Commission rejected many bitcoin ETF’s proposals finding problems
related to “liquidity and valuation.”
On the same day, Grayscale Investments LLC filed an application for conversion of Grayscale Bitcoin Trust into Bitcoin Spot ETF.
At present, blockchain ETFs are much less volatile if you compare them with the volatility of bitcoin ETFs. This happens because they are no longer exposed to bitcoins price change volatility.
Having said that, Blockchain still remains a nascent technology and therefore does not take a large chunk of the market. The stock prices of the companies that are tracked by the ETF remain prone to the
impact of factors that are not related to blockchain technology. When the Bitcoin ETFs are launched, they will get affected by the policies imposed by the regulatory agencies.
In order to understand the key difference between the Bitcoin and Blockchain ETF’s, you must know the difference in the instruments they are tracking.
Bitcoin is a cryptocurrency, whereas the blockchain is a technology of a cryptocurrency. This distinction is much more important when you think of it with regards to it being an instrument of investment.
Bitcoin futures is already offered in some of the country’s top exchanges, whereas cryptocurrency’s status is still doubtful.
In the past few years, many virtual currencies have gotten trapped in a lot of regulatory fights. They have been constantly scrutinized mainly for their role in harboring illegal acts like money laundering.
On the flip side, blockchain technology has received the approval of the CEO of JPMorgan, Jamie Dimon, and has since then been adopted by many companies in the financial sector. Blockchain is neither scrutinized nor banned by the regulatory authorities.
At present, there are seven blockchain ETF's that trade in the regulated markets. All of them were launched in between 2018 and 2021. Their names are:
- Global X Blockchain ETF
- Bitwise Crypto Industry Innovators ETF
- Siren Nasdaq NexGen Economy ETF
- Capital Link NextGen Protocol ETF
- Amplify Transformational Data Sharing ETF
- First Trust Index Innovative Transaction & Process ETF
- VanEck Vectors Digital Transformation ETF
In November this year their assets were around $2.5 billion and the expense ratio was in between 0.5 to 0.95%.
As bitcoin popularity soared, so have that of the Bitcoin ETF’s. In fact, digital currencies became mainstream among institutional investors.
There are a lot of things about the crypto ETF that make it popular-investors can buy and sell bitcoins easily, quickly integrate them into the portfolios, and reduction in the problems arising due to securing and storing of Bitcoin.