The US markets regulator, the Securities and Exchange Commission (SEC) recently approved the trading of the US' first Bitcoin futures ETF. Here we decode the meaning of Bitcoin, Bitcoin futures, and Bitcoin futures ETF.
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: Bitcoin is the world's first and the largest cryptocurrency. It is a decentralised digital currency with a set of protocols and processes and is not available in the physical form. It records transactions on a ledger called a blockchain and offers protection against fraud and thefts. The balances kept on the blockchain can be accessed by everyone making it transparent.
Bitcoin futures: Bitcoin futures, like stock futures, are a type of derivative trading instrument. It allows investors to invest in Bitcoin without holding it (as the derivative would track the price of the underlying asset, in this case, Bitcoin). Investors enter into a contractual agreement to buy or sell the digital coin at a later date, which is pre-specified. And this obligation must be fulfilled on the expiration date. They also allow investors to speculate the future prices and buy if they see the coin going up and sell if they see it falling.
Bitcoin futures ETF: A bitcoin futures ETF is an exchange-traded fund that allows investors to gain exposure to Bitcoin without holding it. These funds track the prices of Bitcoin futures and are regulated. Investors can trade the shares of ETF like they would trade any stocks. But unlike mutual funds, investors can buy and sell ETF shares anytime during trading hours. Bitcoin futures ETF give investors an alternate men's of investing in bitcoin and profiting off its future price movements.
(Edited by : Yashi Gupta)