What is a Bitcoin ETF?

June 8, 2021
Newton Team
June 8, 2021
What is a Bitcoin ETF?

Curious about Bitcoin ETFs? Read the pros and cons of Bitcoin ETF's in Canada.

How ETFs Work:

An ETF is a fund that trades on the stock market, and is tracked to another security or commodity. ETFs are usually baskets of many stocks that you can purchase in one transaction through your broker. There are ETFs for stocks in the same sector (like a technology ETF), indexes (like the S&P500), foreign currencies, commodities and more. A Bitcoin ETF is tracked to the price of BTC, so investors gain exposure to the asset, without actually having to hold Bitcoin themselves.

How to buy an ETF:

Many firms have tried to create a Bitcoin ETF for years, but continually ran into regulatory issues. This year, several were launched in Canada, making them the first in North America. In Canada, investors can purchase a Bitcoin ETF through their online broker just like a regular stock.

Bitcoin vs Bitcoin ETFs

There can be advantages to owning a Bitcoin ETF, but it is important to note that it's not the same as owning actual Bitcoin. Depending on your individual interest in crypto and DeFi, owning your own BTC might make more sense for you. Here are the pros and cons:

Pros of Bitcoin ETFs:

  • A Bitcoin ETF allows you to dabble in crypto without having to commit to storing and managing the security of your funds in a crypto wallet. This can be appealing for institutional investors or those with limited knowledge of password and internet safety.
  • As with all traditional investments, you can also hold them in your RRSP or TFSA for tax purposes.

Cons of Bitcoin ETFs:

  • Bitcoin ETFs cannot be traded for other cryptocurrencies. So, if you're looking into any other cryptocurrencies besides BTC, it might make sense to own the real thing.
  • The purchase of a Bitcoin ETF does not occur on the blockchain. This is something to consider if decentralization and participating in DeFi is important to you.
  • Your funds can be subject to high management fees (some ETFs charge up to 1%).
  • Your trades are constrained to regular day trading hours, unlike the 24/7 crypto markets.

Now it's up to you! Consider your individual trading strategy to see if an ETF interests you, or if you'd rather buy BTC directly from Newton.

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The views and opinions expressed here are those of individual authors and do not necessarily reflect that of Newton. The content of our articles are for informational purposes only and do not constitute financial advice.
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