The financial world is buzzing with the prospects of a Bitcoin Exchange Traded Fund (ETF) as hopes remain high that one could soon be available. Bitcoin is hovering around the $30,000 mark, buoyed by optimism surrounding the potential ETF and its characterization as a potential safe haven. But whether or not investors should consider a Bitcoin ETF for their portfolios is an important question to consider.
The endorsement of a Bitcoin ETF could symbolize a turning point for crypto. It hints at a recognition, albeit cautious one, of Bitcoin's role in the modern financial ecosystem. Investors know that many ETFs offer safety and diversification. There have, however, been an increase in riskier ETFs in recent years, including ones that focus on memes and green energy or other themes. An ETF focused on crypto would add to that list.
And there are plenty of risks that would come with owning a Bitcoin ETF. The volatile nature of Bitcoin, coupled with the regulatory scrutiny, continues to pose questions on the viability and the timing of such an instrument. Investors, however are increasingly seeing Bitcoin as an alternative to the markets and gold, potentially as a safe haven type of investment. Thus far in 2023, Bitcoin’s valuation has risen by more than 70% while the S&P 500 is up just a modest 10%. Amid economic concerns and rising inflation, investors have been gravitating towards digital currencies.
But when things go bad, they can go really bad for crypto. In 2022, while the S&P 500 nosedived by nearly 20%, Bitcoin crashed by 65%. An ETF that depends on the volatile price of crypto could make for an extremely risky investment. A Bitcoin ETF would be a way to get exposure to crypto without having to actually buy a digital currency, but it wouldn’t necessarily make it any safer of an investment.
