ETF, the full name of Exchange Traded Funds, is certainly no stranger to many investors. In the traditional financial market, ETF, as a low-cost and transparent investment tool, has been accepted by a large number of users over time. In the emerging market of digital currency, ETFs are also accumulating strength to wait for the outbreak, and some innovative products have emerged. This article guides readers to understand the current status and potential future trends of digital currency ETFs by sorting out the knowledge points related to ETFs.
Traditional ETFs blooming
ETF, the full name of trading open-end index fund, is an index fund that tracks index changes, can be purchased and redeemed at any time in the primary market, and listed and traded on the stock exchange. Since ETFs adopt the investment strategy of tracking the index, their net value is usually close to the performance of the index, which greatly reduces the active management of funds, and most of them belong to the category of passive investment. In summary, ETF combines the advantages and characteristics of stocks, open-end index funds and closed-end index funds, and provides investors with a very efficient, convenient, transparent and low-cost investment tool.
Judging from the scale and number of ETFs established at this stage, the development gap between regions is quite wide. According to ICI data, as of the end of 2019, the volume of US ETFs ranked first in the world, with a total scale of 4.25 trillion US dollars, up to 72% of the world scale, and the number reached 2,343. The importance of ETF to the US financial market can be said to be extraordinary. Its scale is close to 10% of the total market value of US stocks and contributes more than 30% of the trading volume of US stocks. This is roughly due to the maturity of the US market, 401K pension plans and buyer investment. The promotion of the Gu model. In contrast, China’s ETF market is still small, with an overall scale of US$85.6 billion in 2019, with a number of 256, and trading volume only accounts for 2.81% of the stock market. But from another perspective, China’s ETF market is also developing in full swing. In 2019, the number of ETFs increased by 240% year-on-year, and there is still huge potential in the future.
Source: Zhongtai Securities Drawing: Cointelegraph Chinese
The road to break in the confusion of digital currency ETF
While traditional ETFs are flourishing and blooming, digital currency ETFs are also struggling to grow, and the future can be expected. When it comes to digital currency ETFs, we have to start with Bitcoin ETFs. The birth of Bitcoin marks the opening of the emerging market of digital currency. Therefore, the successful launch of its ETF is also considered a landmark event for whether digital currency can enter the mainstream world.
In the past few years, many well-known institutions or individuals have joined the movement to promote Bitcoin ETF, including but not limited to the Winklevoss brothers, the founders of the cryptocurrency exchange Gemini, the asset management company Bitwise, VanECK, WisdomTree, ProShares, Wilshire Phoenix, Direxion and GraniteShares, among which VanECK, WisdomTree and ProShares are the seventh, eighth and ninth largest ETF issuers in the U.S. in 2019, and they play a decisive role in the traditional ETF market. Unfortunately, none of these attempts were successful. The United States Securities and Exchange Commission rejected every application, the reasons given included price manipulation, excessive price fluctuations, lack of supervision and unclear market size. Bitcoin’s process of embracing ETFs can be described as hindered and long, but the confidence of many people has not been affected by past failures, including Grayscale, the largest asset management company in the digital currency market.
“We believe that the approval of Bitcoin ETF is a matter of time, not whether it is approved or not.” Michael Sonnenshein, managing director of Grayscale Investment, once said.
At a time when Bitcoin ETFs are blocked, Grayscale’s digital currency trust has become the first choice for many qualified investors. Taking Grayscale Bitcoin Trust (GBTC) as an example, it provides a trading tool similar to ETFs, which facilitates investors to invest in Bitcoin very quickly, and eliminates the doubts about deposits, custody, and transactions in the process . The total scale of Grayscale Trust continues to rise and has reached 12.2 billion U.S. dollars, accounting for approximately 2.12% of the total market capitalization of the digital currency market. Among them, the Bitcoin Trust scale is 10.2 billion U.S. dollars, which is as high as 2.91% of the Bitcoin circulation, and its influence on the market It can be seen.
Proportion of Grayscale Digital Currency Trust Holding Positions Drawing: Cointelegraph Chinese
Broadly speaking, although no ETF has successfully passed the SEC approval at this stage, many trading platforms on the market have designed and tried similar digital currency ETF products, such as OKEx, Huobi, Matcha and FTX.
OKEx and Huobi’s products are similar in this regard. They are the design of a typical ETF, and they were launched earlier, both in May 2018. Both of them track their own digital currency index, and open redemption and transactions on the platform to provide a digital asset management tool with diversified risks and diversified targets. Take OKEx as an example. It first launched two indexes, OK05 and OK06. The former is weighted by the market value of the top 5 digital currencies in circulation, and the latter adds the platform currency OKB to the former to reflect the main transactions on its platform. The overall price trend of the currency. On the basis of these two indexes, OKEx has launched an ETT (portfolio investment) product, which supports users to subscribe, trade or transfer. It is essentially an exchange index fund, or ETF. Similarly, Huobi Index is called Huobi Main Index, which corresponds to HB10, the main indexing product of Huobi.
By investing in these types of ETF products on Huobi and OKEX, users are equivalent to investing in the corresponding index. In other words, a basket of digital currencies constituted in proportion to the index. It is a simple, convenient and user-friendly investment tool that is beneficial to More ordinary users participate in market transactions.
In the industry, Matcha’s ETF products are quite innovative. It has separately launched leveraged ETF products for many currencies. For example, BTC 3L and BTC 3S represent ETF products that are 3 times long BTC and 3 times short BTC, respectively. Leveraged ETFs have been widely used in the traditional financial industry. By leveraging and rebalancing, they can obtain the effect of multiple times the underlying index return, which is suitable for unilateral trends and volatility. Matcha’s leveraged ETF is based on this logical design. Compared with the ordinary method of increasing leverage, its advantage lies in its low cost and no margin mechanism, so there is no risk of liquidation and liquidation. Compared with ordinary long/short methods, it provides a feasible way for users who lack funds or currency assets. In a volatile market with unilateral trends, such leveraged ETFs can be a high-quality tool.
The leveraged token (BULL/BEAR) of the FTX platform is another innovative variety of digital currency ETF. Simply put, leveraged tokens are the tokenization of perpetual contract positions, in the form of ERC-20 tokens, and are essentially an index tracking ETF. The FTX platform acts as a market maker and fund issuer. Management, users can exchange it with U.S. dollars through secondary market transactions and subscription and redemption. Compared with ordinary leveraged trading, users do not need to consider the troubles caused by margin, liquidation price or other aspects when buying such leveraged tokens in the spot market.
Future outlook
As an emerging market that has only been born for about ten years, digital currency has experienced many ups and downs and doubts along the way from its budding to growth, and has also gained more and more mainstream support and affirmation. Digital currency ETF can be described as one of the unrealized milestones. With the gradual growth of the market, the value of decentralization is gradually realized. There is no reason not to believe that it will be realized one day. At present, industry practitioners’ exploration and innovation in this area have laid a solid foundation for the maturity of future digital currency ETFs. Just as Grayscale CEO Barry Silbert said in an interview a few days ago: “I think we just have to wait patiently. When the regulator is ready, we will definitely be there.”
Cointelegraph Chinese is a blockchain news information platform. The information provided only represents the author’s personal views, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. If you need to reprint, please contact the relevant staff of Cointelegraph in Chinese.
