Bitcoin, Ethereum, ETF? Everyone talks about it, but now we need clarity

An ETF, or Exchange-Traded Fund, is a type of investment fund traded on an exchange.
It is an investment vehicle that groups together various securities, such as stocks, bonds or other financial instruments, and trades them on an exchange as if they were shares of individual companies.
Let's understand more about why they are so important for the future of cryptocurrencies.
The news that is dominating the digital currency market between the end of 2023 and the beginning of 2024 is certainly the approval of an ETF on Bitcoin (BTC) and Ethereum (ETH).
In recent months, large investment companies, such as BlackRock, Fidelity, Ark Invest and others, have submitted applications to the SEC (Security Exchange Commission) American for the approval of an Exchange Traded Fund.
This is something that could change the fate, for many analysts, of the price of the most important cryptocurrency in the world.

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But what really is an ETF or Exchange-Traded Fund?

It's worth reiterating that an exchange-traded fund, or ETF, is a type of investment fund that trades on an exchange.
It groups together different securities, such as shares, bonds or other financial instruments, and sells or buys them on a stock exchange as if they were shares of individual companies, making them an investment vehicle.
ETFs offer investors a way to efficiently diversify their portfolio and gain exposure to a wide range of assets, without having to purchase each security individually.
For this reason, a Bitcoin ETF could represent a further step towards the mass adoption of this asset, at least as regards its purchase as an investment.

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The price of Bitcoin and the new financial instrument

There are many optimistic predictions regarding the price of Bitcoin once these ETFs are approved.
For example, according to Galaxy Digital, the launch of the Bitcoin ETF is expected to generate a 74 percent price increase in the first year.
Specifically, this prediction would take the value of BTC well above $59.000.
Even the previous increase in the price of BTC which occurred in recent weeks and which brought the value of the asset above 40 thousand dollars would have been thanks to the ETF.
In fact, the addition of the BlackRock ETF ticker has intensified institutional interest in the cryptocurrency, accelerating its rise.
And, in fact, when last July he submitted the application to the SEC for the admission of an ETF on spot Bitcoin, the price of BTC had risen, recording new highs around $31.000.

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The latest on Ethereum and Exchange-Traded Funds

The announcement of BlackRock's application for an Ethereum ETF also spurred an increase in the price of ETH.
“In the coming weeks, arbitrage opportunities will be evident and market participants will consider buying spot ETH and shorting ETH contracts to capitalize on the funding rate. This will result in a secondary increase in the open interest of ETH contracts. Meanwhile, the contract financing rate will decline”, analysts at Bitget Research explained for example, with another optimistic analysis on the price of ETH if the ETF is approved.
BlackRock's request for an ETH ETF, compared to its previous request for a BTC ETF, should generate similar market expectations, driving mainstream institutional recognition and capital allocation to ETH.
During the uptrend of the last month, dominated by BTC, ETH has lagged behind.
Following the announcement, the ETH/BTC exchange rate rebounded by 10 percent in one day.
Some institutions may redirect funds previously invested in BTC towards ETH, seeking potentially higher returns.
Also according to Coinglass data, derivatives market interest in ETH increased by more than 16 percent, going from $6,1 billion to a peak of $7,3 billion.

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Why a Bitcoin/Ethereum ETF is important

To summarize, the approval of an Exchange-Traded Fund (ETF) on digital currencies, such as the aforementioned Bitcoin and/or Ethereum, would be and is important for several reasons.

Okay for traditional investors

A Bitcoin ETF would make it easier for traditional and institutional investors to access the cryptocurrency market.
Currently, many investors may find it complicated or risky to invest directly in Bitcoin through crypto exchanges or digital wallets.

A legitimation of cryptocurrencies

Approval of a Bitcoin ETF by regulators could be seen as a step towards legitimizing cryptocurrencies.
The participation of regulated financial institutions could increase investor confidence in the cryptocurrency sector.

Increased liquidity and adoption

An ETF could lead to an increase in the liquidity of the Bitcoin market.
Investors may be more inclined to invest in Bitcoin through a regulated financial vehicle, thus contributing to the cryptocurrency's wider adoption.

Reduced custody risk

Institutional investors often require high standards of security and compliance for the custody of their assets.
An ETF could simplify this process, reducing the operational and custodial risk associated with directly owning Bitcoin.

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