Mass adoption is slowly but surely coming. However, people still toil in deciding which crypto to pick, resulting in a barrier to adoption.
So, to understand crypto ETF, we first need to talk about what an ETF truly is.
What is an ETF?
An exchange-traded fund (ETF) is a pooled investment security that operates like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way a regular stock can.
An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to follow specific investment strategies.
An ETF is called an exchange-traded fund because it is traded on an exchange just like stocks are. The price of an ETF's shares will change throughout the trading day as the shares are bought and sold on the market. This is unlike mutual funds, which are not traded on an exchange and trade only once daily after the markets close. Additionally, ETFs tend to be more cost-effective and liquid than mutual funds.
A Rising Wave?
Despite this market's turbulence, global cryptocurrency adoption is spreading like a virus. The awareness grows yearly with new people worldwide holding/using crypto.
The path toward adoption looks pretty bright, but we haven't reached mass adoption yet. And that is why crypto ETFs can change the game. As we saw above, TradFi ETFs reached a new demand record because of their simple and passive nature.
Imagine for an average investor:
They do not have time to study crypto.
They do not want to go hard on one or two projects.
They want to take advantage of this new piece of future, having portfolio exposure.
They do not want to manage their positions actively.
In such a case, crypto ETFs can be a perfect solution in that they:
Have exposure to different sectors (GAmeFI, DeFI, etc.).
Help in diversification
Passively assists in managing assets.
Very little time to study/elaborate on crypto.
One of the worst mistakes investors make is being eaten by the Dunning-Kruger effect (over-conviction in investing), which often leads to erroneous results. ETFs can prevent this effect by providing diversification and reducing risk.
Conclusion
In any bet, there is an element of luck involved. If the hedge funds got lucky, they could have beaten the S&P 500 ETFs. The same can be applied to crypto. Investing in a single one can outperform an ETF, but the risk is higher.
The chances of picking the right horse for the average investor are meager due to lack of study/no interest. ETFs increase the probability of strong performers that can tow up the portfolio. ETFs are products mainly made for people that have a long-term approach. The buy-and-hold strategy is straightforward and perfectly designed for the masses.
Comments