Maybe it’s because you prefer to use another cryptocurrency, or maybe you’re a hesitant newbie in the Bitcoin world. In any case, you’d be excited to find out that you don’t have to buy Bitcoin to profit from the price changes in Bitcoin’s value. There are various vehicles that allow one to profit from the price appreciation without actually owning a Bitcoin Wallet or an account on a cryptocurrency exchange.
As it stands, there are three vehicles available to trade Bitcoin without actual ownership, while there are two other alternatives on the horizon too.
The first of these is Bitcoin CFDs. A CFD, or contract for difference, gives a trader exposure to the price movement of an asset without actually taking ownership of the asset. One of the prominent CFD providers is IG, and their site has a comprehensive page explaining how to trade bitcoin CFDs. An interesting aspect of trading Bitcoin CFDs is the ability to short them. Some brokers also offer spread trading on Bitcoin and other cryptocurrencies. Spread betting is very similar to trading CFDs – and allow for short positions too.
The other method to own Bitcoin right now is via an investment trust. The Greyscale Bitcoin Investment Trust (GBTC) trades on the US OTC market just like a share. The trust is 100% invested in Bitcoin but doesn’t necessarily trade at the same price as Bitcoin. Because it is the only Bitcoin trust in the market, demand is very high, and the price tends to trade at a high premium relative to its actual value.
The other vehicles on the horizon are ETFs and futures. ETFs (exchange-traded funds) are similar to investment trusts, but trade on major exchanges. Several ETF issuers have applied for approval for Bitcoin ETFs in the US and Canada.
To date, approval has not been granted. The biggest stumbling block is the fact that ETFs can only invest in financial assets, and as it stands Bitcoin is not classified as a financial asset. There are two routes ETF issuers can take to make ETFs a reality. The first is to have Bitcoin classified as a financial asset. That will probably happen eventually but may take time.
Which brings us to the second option. Futures contracts are financial assets, so there’s nothing to stop approval of an ETF that invests in Bitcoin futures. Currently, there are no Bitcoin futures trading on regulated exchanges, but that is set to change soon.
The Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) have both indicated they intend to have Bitcoin futures contracts trading within months. This will no doubt cause a flurry of new contracts from other exchanges around the world.
Bitcoin futures contracts will be a game changer for the industry. Not only will ETF approval be little more than a formality, but other funds will also be able to invest in Bitcoin. Pension funds, for instance, are currently prevented from investing in crypto assets but may be able to invest in Bitcoin futures.
So, within months we may well have multiple alternatives to trade or invest in Bitcoin. There is no right or wrong vehicle – it all depends on the time frame and the objectives for the trade. CFDs allow for leverage and short selling. ETFs allow Bitcoin to sit in a stock account with other shares. And, of course, direct ownership allows holders to traded directly from one cryptocurrency to the next.
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