SEC is set to allow bitcoin futures ETFs to begin trading

In a massive victory for the crypto industry, the US Securities and Exchange Commission is set to allow the first bitcoin futures trading funds to trade in the US next week, CNBC reported Friday.

Sources familiar with the matter told CNBC that the Securities and Exchange Commission (SEC) is unlikely to block futures-based bitcoin ETFs proposed by ProShares and Invesco. After the news spread, the price of Bitcoin rose above $60K.

If you are interested in investing, financial experts recommend understanding the potential risks surrounding Bitcoin ETFs before giving away your money. Here’s what to consider.

ETF price will not be pegged to Bitcoin

First, it is important to understand that investing in a futures-based Bitcoin ETF is not a direct investment in Bitcoin.

A futures-based ETF tracks the futures contract, rather than the price of the asset. As a result, a bitcoin futures-based ETF will track bitcoin futures, not the price of bitcoin itself. Therefore, the price of the ETF will not match the price of Bitcoin.

That difference can be risky, Ivory Johnson, certified financial planner, certified financial advisor and founder of Delancey Wealth Management, tells CNBC Make It. The price of a futures-based ETF can trade at a premium during a bull market or at a discount during a bear market.

The difference in value is also why a Bitcoin futures-based ETF “is likely to be better for short-term exposure than buying and holding a long-term investment,” says Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

Some bitcoin proponents argue that investors may make better returns by buying the cryptocurrency outright. However, it is impossible to predict the future performance of any asset.

A futures-based Bitcoin ETF can be useful for those who are not sure how to buy Bitcoin safely, or those who would rather not own Responsibility to protect and secure their Bitcoin wallet. The price of bitcoin often fluctuates as well, so an investor who buys the cryptocurrency directly must be able to tolerate the fluctuations.

Ultimately, if you decide between investing in a Bitcoin futures-based ETF or Bitcoin itself, it depends on how much exposure you want to have and how long you want to hold.

There will be additional costs attached

Investors should also be aware that a futures-based Bitcoin ETF may be more expensive than investing in Bitcoin directly. This is because there are a number of The additional costs associated with ETF futures contracts, which can affect the price that investors ultimately pay.

In addition, the ETF will require several intermediaries in the investment, including hedge funds and ETF providers, Johnson says. Some in the crypto space say that the ETF It would benefit these brokers more From retail investors, especially if the ETF is trading at a premium during bull markets.

Raoul Pal, Crypto Investor and Former Hedge Fund Manager chirp Friday. “Wall Street is getting richer. Retail investors are losing again.”

Johnson says brokers are also moving away from the spirit of crypto-assets, because the goal of decentralized, peer-to-peer networks is to remove the middlemen in traditional financial systems.

Any exposure to cryptocurrency is risky

Finally, investors should know that there is still a risk of losing.

Although the futures-based Bitcoin ETF is not a direct investment in cryptocurrency, experts still see the exposure as risky. They view the asset class as volatile and speculative and therefore recommend investing only what you can afford to lose.

As SEC’s Investor Education and Outreach Office chirp On Thursday, “Before investing in a fund that holds bitcoin futures, be sure to carefully weigh the potential risks and benefits.”

The Securities and Exchange Commission wrote in a June publication: “All fund investments involve a risk of financial loss. This risk may increase for positions in Bitcoin futures due to higher volatility in Bitcoin and Bitcoin futures (which means prices can fluctuate widely) )”.

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