The first cryptocurrency fund of its kind is the ProShares Bitcoin Strategy ETF (BITO). Investors get a sliver of Bitcoin exposure through Bitcoin ETFs (BTC-USD). Let's find out the answers to "what is BITO ETF?" Also, "How does it work?"
What is BITO ETF?
An exchange-traded fund called the ProShares Bitcoin Strategy ETF (BITO) tracks the price of the bitcoin cryptocurrency, less fund fees. Initially, the expense ratio was fixed at 0.95%. On October 19, 2021, BITO, the first bitcoin-linked ETF on the market, started trading on the NYSE ARCA exchange. Shares of BITO can be purchased directly from the fund company by investors or through a brokerage.
Since ETFs are investment securities that can be bought and sold on an exchange like stocks, the BITO ETF can provide simple, indirect access to this cryptocurrency for retail investors. BITO purchases bitcoin futures, which are later securitized into a tradeable ETF, in order to track the price of the cryptocurrency.
How the ProShares Bitcoin Strategy ETF Works
ProShares Bitcoin ETF is a futures ETF, thus it doesn't hold bitcoin itself. Instead, it owns futures contracts, giving it access to bitcoin price exposure without really owning the cryptocurrency. The ETF will need to roll these futures contracts into later maturities because futures contracts expire. This puts the fund at risk of rollover, especially when the futures curve is sloping upward (an upward-sloping futures curve is said to be in "contango").
As an ETF, investors can trade shares of BITO on an exchange, in the same way, that they can trade stocks.
How to Invest in BITO ETFs
The 5 steps to investing in a BITO ETF are:
1. Choose a Financial Institution
Investors must choose the financial institution with which they want to do business. Discount brokerage accounts are offered by Charles Schwab, TD Ameritrade, E*Trade, and other companies. Investors may be able to conduct business directly with an investment firm or fund firm that provides the investment for some ETFs.
2. Open an account for trading.
A conventional brokerage account or a retirement account, like an IRA, are the two options available to investors. Accounts may be opened with a full-service broker or a bargain brokerage firm. Although they demand higher commissions, full-service brokers offer advising and portfolio management services.
3. Fund the Account With Cash
Before buying a bitcoin ETF, or any other type of fund, an investor will need to add money to what is called a core account or settlement account. This is typically a money market account and can be funded easily online through ACH payment or electronic funds transfer.
4. Research Bitcoin ETFs and Alternatives
Investors may choose to research alternatives to bitcoin ETFs, such as a direct investment in Bitcoin or other cryptocurrencies, or investing in a bitcoin trust or other traded company that holds bitcoin. After completing their research, investors can choose the most suitable investment for their risk tolerance and investment goals.
5. Place the Trade
Investors can buy shares of a bitcoin ETF in the same way as buying stock. Since ETFs trade intra-day like stocks, investors have choices on the type of trade they can place. The majority of retail investors use market orders, which are filled at the best price at the moment of the order. A purchase limit order can be submitted by investors who would wish to designate a maximum entry price. Only if the security's price trades at or below that mark will a purchase limit order be fulfilled.
Conclusion
Despite not making direct investments in bitcoin, the ProShares Bitcoin Strategy ETF provides exposure to the price of the digital currency. Rollover risk is posed to the investment by the ETF's holdings in bitcoin futures. This ETF's cost ratio is 0.95%. Similar to buying a stock, investors with an interest in BITO can buy this ETF during market hours.
"What is BITO ETF? How to Invest in BITO ETF?" Hopefully, this article can provide you with a better understanding of BITO ETF.
