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Why is an ETF such a big deal?

I have mentioned the Bitcoin (BTC) ETF a lot lately in regards to the price of BTC.  Why is it such a big deal?  The answer is because it would bring in so much new money into BTC that the price would likely sky-rocket.  But it wouldn't sky-rocket in a bubble fashion but rather in a very legit supply and demand fashion.

First of all, what is an ETF?  "ETF" stands for "Exchange Traded Fund".  ETFs are used to take some target asset, like a stock, or a stock index, or a collection of stocks in a specific industry, and create a fund that mirrors the price of those assets.  Instead of buying the actual assets, you buy and sell the ETF.

For example, to trade the S&P 500, you could either buy each of the 500 stocks that make up the S&P 500 (not feasible for most people) or you could buy and sell the "SPY" ETF.  The SPY ETF is set up so the price mirrors that of the S&P 500.  This allows institutional investors an easy way to participate in the S&P 500.

Institutional is the key word here.  Institutional investors are where the real big money is.   Institutional investors are large organizations, such as Labor Unions, Pension Funds, etc. that manage hundreds of millions if not billions of dollars.

Institutional investors can't buy and sell BTC.  But, if BTC was traded as an ETF, they could. Because the ETF needs to have at least a portion of their trading value held in the actual asset, that means that there could be potentially Billions of dollars worth of new investors in BTC.

Right now the Grayscale Bitcoin Trust (GBTC) is the way institutional investors can invest in BTC. Currently there is so much institutional interest in BTC that GBTC is actually trading at 80% OVER the spot price of BTC.  That's just crazy.  That shows there is SO MUCH DEMAND in BTC that they are willing to pay a huge premium just to be able to participate.

At some point soon the SEC will approve a crypto-currency ETF.  At first it appeared that was going to be BTC for sure because there was so much interest in BTC and there were already 5 BTC ETFs in line for SEC approval.  But now there are some ETFs based upon Ethereum (ETH), a tier 1 Alt coin, that are coming before the SEC.  It is quite possible that ETH may be the first ETF and if it is then the price of ETH will skyrocket.

Either way it will mean huge growth for crypto-currencies and you'd want to be on board before that rocket ship takes off.

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  1. UnknownJune 1, 2018 at 12:06 AM

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