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Bitcoin ETFs - the path is only partially free
The cryptocurrencies have been experiencing real hype for months, especially Bitcoin. So far, there are no ETFs on Bitcoin for private investors, but that should change quickly. In the United States, approval procedures for various index products are currently running on cryptocurrencies. Numerous providers have already launched a number of Bitcoin ETFs, which are expected to stimulate the market in the future. But the American stock exchange regulators are still hesitant and are waiting for approvals.
But the financial product is criticized by experts and there are several reasons for this:
- No diversification
- Potential for blistering
The basic idea of the ETFs is to diversify assets in order to benefit from the market upturn as broadly as possible. A Bitcoin ETF would counteract this exactly, because the focus here is only on the digital currency.
Another reason not to invest in Bitcoin ETFs is the potential for bubble formation. Other trading instruments (CFDs) are also speculative derivatives, but so would ETFs. The rate of the cryptocurrency alone has been subject to massive fluctuations, as can be seen in the past few weeks. In some cases there are even double-digit price drops. Many experts are therefore concerned about the formation of bubbles, which is also proven by looking back at the course. Countless government agencies from different countries are currently even examining to what extent the trading in Bitcoin and mining are restricted.
Bitcoin ETFs and the difference to blockchain
Many private investors have long since had the hype surrounding the cryptocurrency heard. Come on amazingly, with the almost daily media presence. However, there is a crucial difference in the Bitcoin Blockchain (which was the real success) and the ETFs. Blockchain is the digital invoice concept behind the cryptocurrency. This software is also used for other digital currencies and is trend-setting. Bitcoins are also used as digital means of payment. Still, the cryptocurrency is risky and extremely volatile. This contrasts with the Bitcoin ETFs, which are out of the question for many reputable investors. The funds and futures, on the other hand, are suitable for anyone who tries speculative business and wants to take advantage of massive short-term fluctuations. On the other hand, if you want to act as a conservative investor, Bitcoin ETFs are not suitable. He should rather rely on ETFs that build on existing companies.
History: crypto fans experience setbacks with ETF approval
There are already several companies that want to offer Bitcoin ETFs. But they have a hard time convincing the US stock exchange regulator. The largest global ETF provider Vanguard is one of them. However, he withdrew his applications through the expanded requirements of the Securities and Exchange Commission (SEC) in America. A similar scenario already existed in 2017 when the Winklevoss twins also failed with their ETF approval. Mainly due to the lack of liquidity of Bitcoin and the unregulated market, there is the second one from the US authorities.
Bitcoin ETFs from Direxion Asset Management
The American company has been approved for five new ones Fund applications to the Securities and Exchange Commission (SEC) on January 4, 2018. According to the authority, the test can take up to nine months. The ETFs should have the following names:
- Direxion Daily Bitcoin Bear 1X Shares
- Direxion Daily Bitcoin 1.25X Bull Shares
- Direxion Daily Bitcoin 1.5 Bull Shares
- Direxion Daily Bitcoin 2X Bull Shares
- Direxion Daily Bitcoin 2X Bear Shares
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The funds would be bound to the Future prices and not, as wrongly assumed by many investors, the Bitcoin price. It is questionable whether the SEC grants approval, although the Direxion Asset Management holders do not expect it themselves. So 2018 will also be an exciting year for Bitcoin investments.
Bitcoin futures - stock exchange bitcoins or what is behind them?
On December 10, 2017 the time had come: Bitcoin Futures were traded on the Chicago CBOE options exchange. On December 18, they also started on the world's second largest options exchange, CME. However, Bitcoin is not the company behind the IPO, only futures contracts are traded. You determine the price of a share, which will be handed over and paid for later. With bitcoin futures, however, the bitcoins are not delivered on the specified date, but the difference in value is compensated. Simply put, it's a bet on the price.
Bitcoin futures using the practical example
The Bitcoin future is USD 20,000. Now the CME Bitcoin Index goes up to $ 30,000, so there is a profit of $ 10,000 in the room. However, if the price drops to $ 18,000, the investor must pay $ 2,000. Of course, it is not settled on the last day, but literally on every trading day. The credit adjustment therefore takes place daily. For this reason, a deposit of 30 percent is deposited with the CBOE for Bitcoin futures. In this case it would be $ 6,000. If there are major fluctuations, the amount is adjusted. There are also additional fees from the stock exchange. The futures contracts on the CBOE and CME options exchanges have a term of at least one month.
First Bitcoin futures brought profit
On January 17, the first Bitcoin futures contracts from CBOE already came in a price of $ 14,400. They could be completed by January 9th. During this period, the Bitcoin price lost $ 4,000. Investors who speculated a loss in value could look forward to a profit.
On January 26, CME's Bitcoin Futures contracts expired. They started on the 18th, twelfth and then experienced a rapid drop in course. The Bitcoin exchange rate went from EUR 16,300 to less than EUR 12,000. Anyone who opted for a price slump here could look forward to impressive profits.
There is already a Bitcoin certificate from the Vontobel bank, which enables private investors, even outside the known ones Invest trading venues in bitcoins. The Swiss bank is one of the first in the world to impose the Bitcoin certificate. It shows the value of Bitcoin against USD and can be found under the number WKN VN5MJG. It was launched in November 2017 and has since achieved profits in the three-digit range. The spread is 2.4 percent; there are also the transaction costs. In addition, the bank now also offers mini futures on Bitcoin: ISIN CH0389658912 and CH0389658938. Here, investors can bet on falling prices.
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ETN trading on Bitcoin
Private investors can not only invest in futures, but also in other ways in the cryptocurrency: ETN trading, Exchange Traded Notes are exchange-traded bearer bonds that represent the performance of Bitcoin in euros. In this way, private investors can also invest in the digital currency. The Stuttgart Stock Exchange is now following suit and enables Bitcoin ETN trading. It has been listed on the Stockholm Stock Exchange since May 2015. In addition to Bitcoin-ETN, there are also Ethereum-ETN.
Anyone entering into ETN trading will also acquire Bitcoin in the same amount on the market. However, anyone who invests should be aware of the risk. The Swedish issuer XBT Provider does not provide protection. The investor bears the sole risk of total failure. There is no risk protection. The ETN falls when the Bitcoin price falls.
XBT protection for Bitcoin
However, the XBT provider holds out the prospect that the ETN is 100 percent secured by the purchase of Bitcoins, because the number is stored as digital currencies. If there are price fluctuations in the ETN, this is due to the price fluctuations in the course of the Bitcoin price. Due to the high volatility, investors bear an increased risk.
ETFs as a better option for futures?
Let us first look at the main differences between ETFs and futures. From a legal point of view, investors acquire a share of securities with the ETF investment. Anyone opting for futures concludes a contract for future trading in a security. What are the advantages of futures over ETFs?
- Longer trading hours
- Larger leverage possible thanks to less margin
- Mostly less spread
- In most Cases of liquid trading
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Of course, there are also disadvantages to futures compared to ETFs:
- for a limited time
- Minimum trading volume significantly larger
Bitcoin outlook for investors 2018
Since 2017 LedgerX has been offering warrants on the cryptocurrency through the Bitcoin exchange. Here too, there will be an expansion of the range in the future. Ethereum warrants are under discussion. In addition, Bitcoin trading on CFDs should also take place in the future. Many brokers have already responded and included bitcoins as base stocks. For example, IG Markets offers trading in Bitcoin contracts in multiple currencies. The same applies to other CFD brokers, where bitcoin trading is also increasing strongly. It is not the real bitcoins that are invested in, but the course of the course. Trading is on margin, so investors only need a fraction of the purchase price. However, using the multiplier, the lever, the risk of loss is also significantly higher.
"Copy Fund" for Bitcoin
Bitcoin CFDs were one of the first to be developed by a social trading provider In the meantime, a "copy fund" for cryptocurrencies is also offered, which is a professionally managed portfolio that is analyzed and monitored using the latest computing technology. Investors themselves decide which personal strategy they want to pursue then the portfolio is put together.
Trading knowledge: “E” like ETFs
Exchanged Traded Funds, ETFs for short, are exchange-traded index funds that track the performance of an index, in this case Bitcoin Taken together, ETFs are an advantageous mixture of stocks and funds. A security is invested as broadly as possible in the market on attractive terms. Due to this diversity, ETFs are many private investments A good investment opportunity. They offer the following advantages:
- Already diversified
Still there are ETFs also involve risks that all investors should be aware of. The ETF market is divided among five major providers. They therefore largely determine that Mark happen. The competitive situation in this segment is just as high as in other areas. Resourceful marketing campaigns are launched to attract investors to their own ETFs. So there are always so-called lever ETFs that promise particularly high returns. If you want to invest in ETFs, you should inform yourself beforehand about the fees and the marketing of the ETFs, in order not to end up just agreeing on a marketing campaign.
Blistering as an ETF risk
Generally come in an ETF index is the stocks that are particularly large and rise the most in price. In this way, fewer and fewer stocks are concentrated in ETFs for more and more money. This can lead to bubbles.
Trading knowledge: "E" like ETN
ETNs are also traded as securities on the stock exchange. Put simply, it is a bank's debt securities that are traded on the stock exchange. However, these securities are not entitled to claim. Investors are taking a credit risk from the bank with the ETN, as the bank agrees to pay the index income when it falls due (of course minus the fees). There are two different types of ETN: secured (covered) and unsecured (uncovered). Investors have protection with the covered ETNs. For example, there is a separately managed account with a third party that stores the security. The amount of the security deposit depends on the underwriting bank. Experience has shown that it is between 1 and 100 percent.
With unsecured ETNs, investors have the entire balance sheet risk of the designating bank. If the issuer becomes insolvent, investors can lose most or all of their investment. The best example was Lehman Brothers. The NYSE took all ETNs and the investors received nothing.
Trading knowledge: "F" like futures
The futures are futures contracts with which future profits are to be made, Futures can be closed on rising or striking. If you bet on a falling price, you sell the future, if you bet on a rising price, you buy it. During the term, the price movement is crucial and brings profits or losses to investors. If the price increases by one point, the buyers receive a credit. On the other hand, if the price drops, the buyer pays the seller for each point. Settlement takes place daily via a so-called "margin account". How high the opening balance of the account is is measured based on the relation to the Bitcoin level when buying a future. Usually it is five percent of the contract value. The daily compensation booking takes place over the entire term. For the seller of the futures, a theoretical maximum loss is unlimited, which does not make the investment low-risk.
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Futures using a practical example
On Investors buy the Bitcoin future with a six-month term at the level of 5,000 points. Now the Bitcoin rises to 5,040 points. The difference of 40 points is reimbursed with the multiplier on the margin account. The same thing happens when the price falls. Like the one with 4,900 points, for example, this difference of 100 points is deducted from the margin account with the multiplier.
Conclusion: Bitcoin ETFs, futures and ETN as an investment alternative
Who not only in the Investing digital currency directly and buying coins also has numerous options. CFD trading is still high on the list for many investors, but there are also numerous investment alternatives. These include, for example, futures or ETN. ETFs are also considered an interesting investment opportunity, although they are not yet available for Bitcoin. The American authorities are sometimes reluctant to grant approval for Bitcoin ETFs that have been applied for. So far, however, Bitcoin futures have been established, above all the warrant issued by the Swiss bank Vontobel. ETN trading is now also possible on the Stuttgart stock exchange. On the Stockholm Stock Exchange, on the other hand, has been a little longer, since May 2015. Experts are certain that Bitcoin ETFs will also be available in the future, since customer demand is unbroken.
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