ETF stands for "Exchange-Traded Fund." It was originally used because users trading stocks didn't have time to manage and analyze stock assets, so they bought some ready-made stock portfolios. These stock portfolios are launched by financial companies that manage funds, and users can choose to hold ETFs or redeem them.
Redemption is the biggest difference between ETFs and regular funds. After users purchase regular funds, if they choose to redeem, they receive cash. If they purchase stock ETFs, the redemption is in the form of physical stocks. Therefore, ETFs are more transparent and have lower risks than funds.
Furthermore, the fees for funds are typically around 1.0%-1.5%, while ETF fees are around 0.3%-0.5%. ETFs are not limited to stocks; there are also bond ETFs, forex ETFs, and more. Due to their transparent investment portfolio and lower fees, ETFs have become more popular in recent years in the market.
Bitcoin ETF vs. Funds
Bitcoin ETF translates to "Bitcoin Fund," but because there are significant differences in redemption between funds and ETFs, to avoid misleading users, the term "Bitcoin ETF" is used directly.
The concept of Bitcoin ETF was proposed in 2010 and, after several evolutions, it finally became what we know as BTC ETF today. Its main function is custody. Typically, the normal process is for users to buy Bitcoin on a cryptocurrency exchange and then store it in their cold wallet or leave tokens on the exchange. The entire process is a nightmare for the older generation, aged 50 and above, as most of them cannot understand blockchain and smart contracts, let alone complex token security, storage, and more. Therefore, the number of older users who trade cryptocurrencies is less than 5%. At the same time, due to the continuous rise in the price of Bitcoin, there is a growing demand for purchasing Bitcoin.
The introduction of Bitcoin ETF means that this group of users can confidently entrust fund companies to manage their wealth without the risk of asset misappropriation by exchanges, as seen with FTX.
Common Misconceptions About Bitcoin Funds and Bitcoin ETFs
In the Chinese translation, BTC ETF is often translated as "Bitcoin Fund," but in reality, there are significant differences between the two. If users purchase a Bitcoin fund, they receive fiat currency when redeeming. If it's a BTC ETF, they receive Bitcoin upon redemption. This means that if regulations are not strict enough, Bitcoin fund companies have a high risk of holding users' Bitcoin to trade other assets for profit.
Because cryptocurrencies (or digital assets) still carry high risks, currently, only BTC ETFs are proposed, notably by the U.S. SEC. If approved, the next one likely to be approved is an ETH ETF. However, considering that ETH still has many centralized issues, approval for an ETH ETF may take longer than what BTC may require.
BTC ETFs are currently under review by the SEC. Each time a rejection is made, the resubmission cycle is 200 days. It's also noticeable that each new BTC ETF submission, especially in the most recent one in October 2023, indicates that the SEC's attitude has become more positive and proactive. So, the market believes that BTC ETF will eventually be approved, but the question is when.
As a result, Bitcoin prices have surged by 30% to a high of $35,000.