How ETFs Can Help The Crypto Market?
Mutual Funds are a popular type of investment among investors. This instrument is popular with beginners because of its simplicity. Mutual Funds are an investment alternative for the investor community, especially small investors and investors who do not have much time and ability to calculate risks or analyze their investments. Mutual Funds are designed as a means to raise funds from people who have capital, have the desire to invest, but do not have sufficient time and knowledge.
However, what about an Exchange Traded Fund (ETF)? Have you heard of it?
1| ETF, what is it?
ETF is a Mutual Fund in the form of a Collective Investment Contract, the units of which are traded on the Stock Exchange. In other words, ETF is an investment product that combines two product characteristics at once: open-ended fund and stock.
ETFs allow potential investors to try to enter a market without the risk of buying the asset itself. The basic assets of an ETF can be commodities, stocks, bonds or even a combination of these assets. The first thing to understand is that ETFs are passive investment instruments. There is no fee to manage or track an ETF even if it is actively traded on the public market. For example, buying a Gold ETF allows investors to have exposure to the Gold market without actually holding any physical assets.
By the US Securities and Exchange Commission (SEC), ETFs are classified as securities and can track the movement of an investment — a commodity such as gold or shares of a company — which investors do not need to buy gold or stock directly.
The advantages and objectives of investing in ETFs
The following are the advantages and objectives of investing in ETFs compared to other investment alternatives: (1)Diversification: Automatic diversification of several leading stocks in one order. (2)Flexibility: Take advantage of high buy/sell flexibility, because you can directly buy and sell ETFs during exchange hours just like stocks do.
ETFs are very useful for dealing with risks and still providing an advantage against markets that are in high demand. ETFs are also recognized as a very useful tool for investors who want to play it safe on a road with minimal risks.
Then ETFs were created especially for new cryptocurrency investors. Because cryptocurrencies are known to be volatile and unstable, new investors will have a hard time.
Can ETFs solve that?
2| Why are ETF good for cryptocurrencies?
ETFs on cryptocurrencies have the potential to eliminate security and instability issues in the cryptocurrency market. Investors can still be introduced to the world of bitcoin and remain in a familiar and regulated order.
As mentioned earlier, ETF is a passive investment instrument. Every ETF is tied to an index, and the performance of the ETF tracks the performance of the underlying index. In a cryptocurrency ETF, an index can consist of a mixed crypto portfolio or simply an index-linked to a cryptocurrency price.
The basic difference between owning a Cryptocurrency ETF and cryptocurrency, in general, is that there are no concerns about the security or storage of the cryptocurrency — ETFs add a layer of security because investors’ money is tied to price not to the digital asset.
So there are no exchanges to hack, no wallets to crack — only money on the market, following the prices of cryptocurrencies (Bitcoin and altcoins). So Bitcoin dan altcoin ETF offers a safer and more stable way for investors to experience the benefits of the cryptocurrency market without plunging into the wild world of cryptocurrency.
What is the difference between owning a Bitcoin and a Bitcoin ETF?
Having a Bitcoin ETF there are no worries about the security or storage of the Bitcoin. The owner of the Bitcoin ETF illustrates that he owns Bitcoin but does not need to worry about where the Bitcoin is stored and asks if it is safe or not, the owner of a Bitcoin ETF does not have to worry about the technical details of the Bitcoin they have. It is enough to bring proof of ETF ownership and if you want to sell it, you can sell it like shares.
3| Multiply your profits with a leveraged ETF
Cryptocurrency trading is sometimes full of risks and often leads to big losses without realizing it. No one can confirm the exact number, often the analysis is not in accordance with market movements. Like forex, bitcoin leveraged trading can also be used to increase profits. For those of you who don’t know leverage trading yet, I will explain a little of the advantages of trading crypto.
What is the leverage ETF?
Leverage refers to the ability to take a much larger position with less capital, in other words, it can increase the profit of a trade or investment with small capital. A leveraged ETF has the potential to give you high returns, it can outperform the underlying index two or three times over a certain time frame. Like Hotbit which supports 1Day 3x Long (1D3L) and 1Day 3x Short (1D3S) trading.
Hotbit started trading leveraged ETFs on 4 June 2020. At Hotbit you can buy leveraged ETFs with USDT. For trading fees charged is 0.1% equal to the rate of spot trading fees.
When combined in cryptocurrency, leveraged ETF will provide a safer and more stable way for investors to experience the advantages of the cryptocurrency market with the potential for profit multiplied without having to actually dive into a very volatile market.
Quoting from the “Leveraged ETF FAQ” by Hotbit, leveraged ETF has unique characteristics that are strong compared to futures contracts, that is:
(1) Similar to spot trading without margin
(2) There is no risk of liquidation
To know more about ETH Leverage, please read here.
4| The easy way to trade ETFs on Hotbit
Now that I understand the benefits of trading cryptocurrency ETFs, I will now review a brief way to trade crypto ETFs on HotBit. You can follow the steps below to get started investing or trading cryptocurrency on HotBit.
❶ Register at Hotbit
You can also register via my referral link, click here.
Don’t forget to enable dual security, HotBit offers dual security features with 2-fa Google Authenticator, verification phone number, and verification email. This is very important to keep your account safe.
❷ USDT deposit
After you have an account at Hotbit, the next step is to enter an amount as a deposit. This you need to do before you start buying ETFs. It’s simple, click the deposit button on your HotBit account dashboard. There are two deposit options:
- USDT deposit from your local exchange
- buy directly with fiat via Epay
❸ Observe and study ETF charts
The next step after you have filled your deposit is to observe the trading chart. By observing the trend on the chart, you will find out when the price tends to go up (bullish) or the price tends to fall (bearish) so you can determine when is the right time for you to buy the ETF.
❹ Buy and sell ETFs
Buying an ETF is like buying any other asset. There are Buy and Sell buttons that you can find easily.
In cryptocurrency trading, leverage is like a double-edged sword. You can lose, or get multiple profits. So before deciding to get involved, make sure that you have studied this well, understand that risk management is very important.
Hopefully, this article can be useful and increase your knowledge about ETFs and their relation to cryptocurrency. Remember, no investment is completely safe, everything has risks. The most important investment is to have sufficient knowledge and experience to strategize and manage risk well.
Key Takeaways — — — — — — — — — — — — —
❓ What is an ETF?
An ETF is an investment product that combines two product characteristics at once: an open-ended fund and stock. ETFs are classified as securities and can track the movement of an investment — a commodity such as gold or shares of a company — which investors do not need to buy gold or stock directly.
❓ Why are ETFs good for cryptocurrencies?
ETFs offer a safer and more stable way for investors to experience the advantages of the cryptocurrency market without having to dive into a very volatile market.
❓ What is the difference between owning Bitcoin and a Bitcoin ETF?
By owning a Bitcoin ETF there are no worries about the security or storage of Bitcoin, besides that there is less risk for investors who have not adapted well to the highly volatile cryptocurrency ecosystem.