Crypto vs. Crypto ETF – What are the differences
When an investor begins to trade crypto, there are several factors to consider before investing in crypto versus crypto ETF. Cryptocurrency is a digital currency or asset that a government or bank does not centrally regulate. Cryptocurrencies transactions occur on a decentralized ledger system known as the blockchain, unlike fiat currencies. The advantages to trade crypto are that transactions happen cheaper and faster than other forms of currency because there is less regulation.
An ETF is a bundle of securities bought and sold on an exchange. Like stocks, ETFs are traded at prices throughout the day that depend on the supply and demand of investors’ sales and purchases. A cryptocurrency ETF is an ETF that consists of cryptocurrencies that tracks the price of one or more digital tokens. Some of the best performing cryptocurrency ETFs are ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF (BTF).
Investors should consider the pros and cons of trading Crypto ETFs versus crypto. Crypto ETFs make investment more accessible to more people and appeal to both risk-taking and wary investors. On the other hand, cryptocurrencies eliminate the possibility of bank failure and make transferring funds more accessible and faster. However, they are subject to more hacking and increased volatility.
Crypto ETFs Increase Accessibility to More People
Bitcoin ETFs have not yet been approved by the Security and Exchange Commission, which does not exist yet. However, when they do get approved, one benefit is that they will be regulated by the SEC. The increased oversight is fitting for the wary investor who stayed away from crypto due to the lack of government regulations. Bitcoin ETFs would also be cheaper to invest in than Bitcoin because they have lower management fees.
Further, crypto ETFs will be accessible through traditional trading platforms, which will make it easier for people to invest, and reduce their risks to one product.
Crypto ETFs Suit Both the Hands-off and Risky Investor
Additionally, another benefit of crypto ETFs is that they would allow investors to gain exposure to the value of crypto without owning any cryptocurrency and learning complex tools to trade crypto. In doing this, investors cannot get in trouble for managing the risk of very volatile cryptocurrencies since they do not actually own them. This situation is fitting for investors who seek to diversify their portfolio with a risky asset without seeking to manage their accounts actively.
Crypto ETFs are fitting for investors who are willing to take the risk of losing money to make significant gains in a largely untapped market.
Crypto is Decentralized
The government or a bank does not regulate cryptocurrency transactions, which they do for fiat currencies. Since cryptocurrencies are decentralized, it eliminates the risk of a single-point failure. Increased investment in crypto would prevent a bank failure that led to the recession in 2008. Decentralization is appealing to investors. The decentralized aspect of crypto also makes it easier and faster for investors to transfer funds without a bank or credit card company.
Crypto can be Hacked
Crypto keys are vulnerable to attack if hackers on the internet are able to get access to someone’s key. When someone gets ahold of the key, they can perform a single transaction. Hacking can be in the form of phishing attacks, fake hardware wallets, and malware.
One solution is to use a non-custodial wallet, which gives you complete control of your crypto keys without third-party access. However, it becomes your responsibility not to lose your keys, or else you can lose access to all your holdings.
The Bottom Line
Investing in crypto versus crypto ETFs has pros and cons that investors should consider when trading crypto. Crypto ETFs will increase the accessibility of crypto to more people. Crypto ETFs will allow people to invest in ETFs that follow cryptocurrency without actually owning crypto, which reduces their risk. However, crypto ETFs have not been approved yet because the government will regulate them. SEC regulation makes them appealing to investors who are wary of crypto due to its decentralization. Crypto ETFs are also attractive to hands-off investors who want to diversify their portfolios without monitoring the price ups and downs of crypto.
On the contrary, investing in cryptocurrencies gives investors access to faster and easier transactions since there is no third-party monitoring them. Cryptocurrencies also give investors access to more significant gains. However, it can be easy for hackers to hack cryptocurrencies by just getting access to someone’s key. Other hacking techniques include malware, phishing, and fake hardware wallets. It is important to note that cryptocurrencies are subject to significant price volatility. For instance, Bitcoin jumped to $17,738 in December 2017 before sliding to $7,575 in the following months. Investors must be well-equipped for volatility if they plan to invest in cryptocurrencies.
It is essential that investors consider the pros and cons of crypto and crypto ETFs when they begin to trade.