ETFs Could Revolutionize Bitcoin Access…if They Come to Market

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The SPDR Gold Shares (NYSEArca: GLD), the world's largest gold-backed exchange traded product, changed the way investors tap gold, forever making the yellow metal more accessible and more cost-efficient for legions of investors.

Some analysts believe exchange traded funds can do the same for bitcoin if those funds ever come to market.

Thus far, no exchange traded products related to digital currencies have been approved by U.S. regulators. Derivatives help increase liquidity and improve markets for an asset category by allowing investors to bet on ups and downs of an asset, evening allowing individuals to adopt market-neutral strategies. They are also a key component in the creation of many futures-backed ETFs utilized by a range of investors.

JPMorgan analysts recently said “bitcoin ETFs would offer easier access to investors because investors must have a digital wallet to trade the digital currency at all, which makes access difficult. However, exchange-traded funds are traded often, and they describe ETFs as 'highly accessible via investors’ brokerage accounts.' Further, they note that ETFs are 'highly transparent,' as “derivatives, such as futures, readily track underlying assets and are regularly used by ETFs to support access to the underlying investments,'” reports ValueWalk.

In January, a batch of ETF issuers withdrew plans for bitcoin ETFs, prompting investors to wonder when regulators would approve ETFs based on the digital currency.

Direxion, ProShares and VanEck are among a handful of ETF issuers that have withdrawn filings to launch bitcoin ETFs at the request of U.S. regulators. The Securities and Exchange Commission (SEC) requested the issuers withdraw their filings.

Bitcoin futures are currently live on Cboe and CME with Nasdaq still considering a launch of similar products later this year.

The JPMorgan analysts note that GLD “enabled more investors to invest in gold, making it 'a portfolio diversifier' and 'a foundational asset.' Additionally, the increased access boosted gold prices from $443 in November 2014 to above $1,000 still today after the peak in 2011. They also point out that the gold fund is one of the largest ETFs on the market with more than $35 billion in assets under management,” according to ValueWalk.

The World Gold Council reminds investors that gold is very different from cryptocurrencies since the physical precious metal is less volatile, has a more liquid market, trades in an established regulatory framework, has a well understood role in an investment portfolio and has little overlap with cryptocurrencies on many sources of demand and supply.

For more information on the cryptocurrency market, visit our Bitcoin category.

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