Most investors believe that the introduction of bitcoin ETFs is nearly certain. The debut of bitcoin ETFs is expected to transform cryptocurrency markets. Institutional investors, such as pension funds and hedge funds, will lead a flood of capital into the industry and stabilize volatile crypto prices.
Most people currently believe that the structure and compositions for commodity ETFs and bitcoin ETFs are similar. However, there are many notable differences.
Before we dive into the differences between Bitcoin ETFs And Commodity ETFs let us take a closer look at what Exchange-Traded Fund actually is.
Exchange-Traded Fund is a pooled investment vehicle like mutual funds. A bunch of investors pools money together to buy a bunch of assets. Simple. But there is a difference between Mutual Funds and ETFs. Both funds allow you to have a diversified index – a combination of multiple assets, but mutual funds are not traded on stock exchanges and they have a net asset value fixed for the whole day – you can only buy or sell mutual funds once in a day at the NAV of the day. Unlike Mutual funds, ETF can be traded on exchanges just like other stocks and the price changes throughout the day based on the trading volume.
There are several kinds of ETFs like Equity funds, currency funds, commodity funds, real estate funds and many more. A commodity ETF allows you to buy and sell commodities on the stock exchange without physically holding the commodities. Commodity ETFs can be a combination of more than one commodities or just one single commodity. The most popular ETF for a single commodity is the Gold ETFs.
The goal behind Bitcoin ETF is simple, get institutional investors on board to trade bitcoin without them having to bother about the technicalities associated with buying and storing the cryptocurrency. VanEck and SolidX have come together to create the current Bitcoin ETF proposal. No other cryptocurrency will be part of the ETF except Bitcoin.
Bitcoin ETF Vs Commodity ETF
Given below are that major differences between the two ETFs.
Bitcoin ETFs Will Surely Be More Expensive Per Share
Joshua Gnaizda, the founder of Crypto Fund Research, says the per share price of a bitcoin ETF could be comparable to the world’s highest share price, Berkshire Hathaway Class A shares. But the point of this is that institutional investors will have to step up to the plate in a major way to make ETFs accessible to retail investors. Taking into account current and possible future prices for bitcoin, that could translate into fairly expensive prices for retail investors.
Unique Risks Associated With Bitcoin Will Lead To Higher Prices
Cryptocurrencies present unique risks that are not present in commodity and gold ecosystems. Insurance for cryptocurrency holdings presents another significant risk. Crypto insurance has become a lucrative industry for existing insurers primarily because they can charge high premiums. Gnaizda estimates that insurance prices could be as much as 5% of overall holdings and remain expensive unless several billion dollars in assets is reached.
Higher Expense Ratios
The fee charged by fund managers for administration and storage of assets will be significantly higher for cryptocurrency holdings. According to Gnaizda, we shouldn’t be surprised if it ends up being 1% higher. This is massive when we put these numbers into perspective. Expense ratios for most funds is between 0.2% to 0.4%; gold ETFs average between 0.25% to 0.40% as expense ratios.