Source: The Merkle, originally published on .
A lot of industry experts have high hopes for Bitcoin ETFs. These investment vehicles are primarily designed to attract more institutional investors, assuming such a vehicle ever gets approved. At the same time, there are several downsides to ETFs which could hinder the long-term growth of the Bitcoin industry.
4. Intraday Price Concerns
In the traditional financial world, ETFs are priced according to intraday price changes. In a more volatile industry such as cryptocurrency, intraday price changes can look very different from one day to the next. Bitcoin investors with a long-term perspective do not benefit from intraday price changes, and they may even make them question their investment.
3. Higher Costs
While a Bitcoin ETF would be a very good way to invest in BTC without buying cryptocurrency directly, it may come at a price. More specifically, the cost of trading Bitcoin through an ETF could be a lot higher compared to dealing with the cryptocurrency directly. This will mainly depend on which Bitcoin ETF gets approved and is used by investors, but it is something which speculators need to be aware of at all times.
In traditional finance, it is not uncommon for ETFs to incur higher prices than the underlying assets, mainly because of the management fees associated with such vehicles. Once a Bitcoin ETF is approved – assuming the SEC ever does so – there will be strong competition in terms of overall fees and charges. The cheapest service provider will undoubtedly gain a lot of traction, although users still need to be aware of any additional fees that may be part of the agreement.
2. Lower Dividend Yields
In the volatile Bitcoin industry, it will be interesting to see whether any ETFs ever explore the dividend-paying option. These programs reward investors with dividends based on the day’s price movements. Investors will probably never see gains in the form of dividends, which is only to be expected.
Should a Bitcoin ETF pursue the dividends option, investors need to be aware that they will not see the same yields as they would if they owned Bitcoin directly. ETFs track broader markets, which will always result in less profits despite overall market gains. It is another drawback of the ETF investment vehicle, although this point only concerns the dividend-paying ones. Convenience has its price, especially in the cryptocurrency industry.
1. Leveraged Returns
In the world of Bitcoin, leveraged margin trading is very common. As such, it seems reasonable to expect leverage ETF returns to make their mark on this industry. Any ETF provider engaging in leverage puts its investors at risk of losing a lot more money compared to the actual market loss. This also means one could potentially score bigger gains if market prices rise, although this is a very risky game to play in the Bitcoin world. This type of ETF also seems to benefit traders holding the investment vehicle for just one day, which will only serve to create more market volatility.