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ETF hopes power Bitcoin over $59,000
With the news Bitcoin exchange traded funds could be about to land in the US, BTC intensifies its upswing.
Bitcoin bounces on positive SEC noise
Reports from Bloomberg indicate that the SEC would be in favour of approving at least some Bitcoin ETFs.
The SEC is reviewing 40 Bitcoin exchange traded funds right now. It is believed that the commission will approve at least some of these. That would make any new ETFs the first of their kind in the United States.
The news filled crypto traders with renewed confidence this morning, sending BTC prices soaring. Prices nudged the $60,000 mark with highs of $59,931 registered on Thursday. At the time of writing, BTC was trading for $59,395.
Bitcoin Futures passed $60,000 this morning before falling back to around $59,650. Both BTC and futures are up over 3% on the day.
If the SEC approves a Bitcoin ETF it will be the first of its kind in the US. Previously, commissions in places like Brazil, Canada, and Europe had given the green light to crypto exchange traded funds.
So, who is making the applications? Bloomberg mentioned ProShares and Invesco and two frontrunners who may see their applications approved next week.
Valkyrie, VanEck and Galaxy Digital Funds have all made ETF applications this year too.
The Bloomberg report said that ProShares and Invesco’s proposals are based on futures contracts. They were reportedly filed under mutual fund rules that SEC Chair Gary Gensler has said provide “significant investor protections”.
Gensler helped boost Bitcoin prices last week when it was reported that he said the SEC had no plans to launch a crypto ban. His comments came in the wake of a move by the People’s Bank of China that made digital token transactions illegal in China.
That said, Gensler had previously stated he believes that the crypto market could encourage price manipulation and expose millions of investors to significant risk.
However, this time Gensler and the SEC’s actions appear to have instilled high confidence in crypto traders.
Other tokens have been brought up by the Bitcoin surge. This is a regular occurrence. When Bitcoin is up, certain coins tend to perform well, and vice versa. Ethereum, for example, reached $3,855 after Bloomberg’s report was published.
Eight consecutive weeks of inflows for the crypto market
Data from digital asset managers CoinShare said cryptocurrency products attracted $226.2m in investments for the week ending October 8th. Fittingly, that marked the eighth consecutive week for inflows across the digital token sector.
Across that eight weeks, the total invested came to $638m. The overall figure for the year-to-date is $6.3bn.
Big business, but, with the global digital currency sector worth over $2 trillion, we knew that already.
No prizes for guessing which coin attracted the most attention. Yep, it was bitcoin. CoinShare says the world’s most popular token attracted $225m during the review period. Unlike other cryptocurrencies, Bitcoin has only had four consecutive weeks of sustained inbound investment.
Ethereum saw minor outflows totalling $14 million. While still the world’s second most valuable token by capex, ETH continues to lose ground to the Bitcoin behemoth. Altcoins such as Solana and Cardano posted inflows of $12.5 million and $3 million.
Litecoin, Ripple and Polkadot all posted outflows.
Thematic Investing with ETFs
Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.
A look at ETFs and Thematic Investing
What are ETFs?
ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.
Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.
An ETF vs an Index fund
There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.
- ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
- Exchange traded funds generally require lower minimum investment
- ETFs are typically more tax efficient
For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.
Do ETFs pay dividends?
That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.
An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.
Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.
How does thematic investing apply to exchange traded funds?
The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.
By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.
One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.
For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.
A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.
Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:
- Fintech innovation
- Autonomous technologies & robotics
- Next generation internet
- Genomic revolution
So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.
“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.
By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.
How popular are thematic ETFs?
Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.
In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.
Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.
There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.
In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:
- iShares Global Clean Energy ETF (INRG) – 120%
- WisdomTree Cloud Computing ETF (WCLD) – 92%
- VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%
Risks of thematic investing with ETFs
As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.
There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.
As ever, due diligence and research are important here. Make sure you do yours before committing any capital.
What are ETFs and how to invest in them
New to trading? You might be asking yourself “what are ETFs”? Here, we take a look at these financial products to give you some idea of how they work, and how they might fit into an investment or trading strategy.
What are ETFS?
Breaking down ETFs
ETF stands for Exchange Traded Fund. They are a form of investment that combine the features of funds and equities.
ETFs are like other types of fund in that they are made up of a group of assets. These might be shares from a certain sector, commodities, bonds, or a mixture of different asset classes. The assets inside an exchange traded fund help track the performance of the fund’s underlying market as closely as possible.
Unlike other funds, exchange traded funds are listed on exchanges as their name suggests.
Some ETFs contain thousands of stocks; others not so much. But, by investing in an ETF, you can gain exposure to an entire sector with a single trade, instead of investing in individual stocks. For example, the ARK ETF is gathering together companies related to space travel and exploration.
Oil ETFs, for example, will likely contain oil producers, but they can also include companies involved in other aspects of oil, such as oilfield service providers, equipment manufacturers, transportation firms and so on. Of course, oil ETFs may also include different types of oil assets, like WTI or Brent crude oil futures, together in a single fund.
Benefits of exchange traded funds
Investors use ETFs for numerous reasons as they do offer some key investment benefits.
- Transparency – The assets inside an exchange traded fund are available to see, so you’re not closed off from what you’re investing in. All of them are publicly traded assets available on exchanges. You know what you’re getting in an ETF. Their prices are displayed too via exchanges, making them very accessible.
- Diversity – Successful investors diversify their portfolios to protect against risk. ETF shares allow them to hedge against negative movements in single sectors or markets, as this type of instrument offers access to multiple markets in a single trade.
- Variety – The variety of options available for ETF options is nearly as diverse as the number of individual stocks available on exchanges – ideal for diversification.
Types of ETF
Here is a list of the most commonly occurring exchange traded funds available for investors
- Commodity ETFs – These group together different commodities, with popular funds including oil ETFs, gold, and other metals.
- Currency ETFs – Used by forex investors to invest in a variety of currencies such as USD, EUR, or GBP.
- Industry ETFs – Like the aforementioned ARK Space ETF, these group together stocks in a specific industry such as tech, banking, or oil & gas. They may take a wider view of their industry, representing companies working across all sectors, like tech manufacturers, component suppliers, technology retailers, and so on.
- Bond ETFs – These include government bonds, corporate bonds, and US municipal bonds, covering state and local bonds.
- Inverse ETFs – An inverse exchange traded fund attempts to earn gains from stock declines by shorting stocks (selling stocks, expecting a decline in price, and purchasing the stock again at a lower price).
How to invest in ETFs
Currently, there are over 70 different exchange traded funds to choose from on our Marketsx trading platform. We’ve laid how some key steps below on how to invest in ETFs.
- Choose your area of interest – What are you looking to invest in? Have any markets caught your eye? Maybe you want to capitalise on the recent cryptocurrency boom, or invest in renewable energy? Set out which sectors you wish to invest in.
- Trading or investing – Are looking to trade or invest in ETFs? There is a key difference here. Investing is where you would buy into the fund, assigning what level of capital you want to invest in each of the fund’s assets. Trading would mean you do not own any of the underlying assets in the fund. Instead, you would be trading on underlying price movements, like you would a stock CFD. Trading is done via Marketsx platform.
- Set your budget – Trading and investing contains inherent risks. While there is substantial potential to make profits, you could also make substantial losses too. Only set an investment budget you are comfortable with. Never commit any capital you cannot afford to lose. You can also add stops and limits to your Marketsx or Share Dealing account.
- Open & monitor your positions – Once you’ve decided, you’re ready to open your positions. Be sure to monitor your ETFs for price movements and so on, to mitigate your risk and avoid any losses.
Remember: trading and investing in ETFs, like any financial product, is risky. You can lose money. Please be ensure you know of all the risks and mitigate them accordingly when investing or trading in exchange traded funds.