Considering that there’s an app for practically everything these days, it stands to reason that it was really only a matter of time before Wall Street lobbied Washington sufficiently to roll out its own version of bitcoin — the ultimate bitcoin app for institutional investors.
Prior to 1993, there wasn’t an easy way for investors to purchase a single share that gave them exposure to a broad index of American stocks.For most of us, there’s no conceivable way to stuff a full portion of every single dish at a buffet, but broken down into bite-sized chunks, it is possible to sample a wide variety of foods.When the benchmark S&P 500 was created, it was intended as an index to represent a broad swathe of American companies and indirectly, the performance of the U.S.
Complicating the matter, the composition of the S&P 500 is updated from time to time and investors who were trying to create their own version would need to stay on top of that as well. Whereas U.S. bitcoin ETFs invest in cash-settled futures, something like the SPDR actually buys shares of the very asset that it is intended to track.
Given their convenience and accessibility, it’s no surprise then that ETFs have soaked up a ton of investor dollars. But many of those early U.S. bitcoin ETF applications were for instruments that would actually hold bitcoin as the underlying asset, and shares of the ETF would track the value of the underlying bitcoin based on supply and demand for the ETF itself.The problem of course was that the U.S.
In the early 17th century, Japanese rice farmers needed a way to guarantee the price of rice when brought to harvest to help hedge against the risk of being a farmer. Since that time, futures for a whole range of commodities have risen and have been used both as a hedging tool as well as an instrument for speculation.
Other factors like expected future supply disruptions, for instance a bitcoin halving , could also see futures prices at a premium to the spot price.Futures are also subject to a phenomenon known as backwardation, where the futures trades at a discount to the spot price. Making matters worse, an ETF that relies on futures can and most likely will, underperform the underlying asset it is supposed to track.Image: Tima Miroshnichenko/Pexels
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