Blockchain technology has risen from obscurity to being a mainstream media word. The rush of blockchain stems from its ability to process data securely. Moreover, it offers transparency and decentralization of information to the people in the network. As blockchain technology becomes increasingly popular, people are also investing in blockchain ETFs. This novel interest is because it enables prospective investors to gain exposure to securities and commodities they wish to hold.
In this article, we would be discussing what ETF means, what blockchain ETF means, and how it works.
WHAT IS ETF
Firstly, this article will break down what ETF means. ETF, shortened for Exchange-traded funds, is popularly referred to as a basket of securities that can be traded on exchanges just like stock exchanges. In other words, when you invest in ETF, you obtain a collection of assets-bonds, stocks, and commodities in a single fund. Thereby, letting you invest in lots of securities all at once. The nature of ETFs is similar to that of mutual funds as they both can be built to track specific stock indexes or industries. However, a major difference between these two funds is that, while ETFs can easily be traded when the market is open, mutual funds can only be traded from 4 pm, when the market is closed.
WHAT IS BLOCKCHAIN ETF
Blockchain ETFs are exchange-traded funds that only invest in companies that use blockchain technology for operations. They track the stock of companies and organisations that invest in blockchain development, technology, or research. Furthermore, it is important to note that blockchain ETF does not necessarily invest in companies dealing with crypto like Bitcoin. A number of organizations integrate blockchain technology into their infrastructure. In addition. from lending services to shipping, finance and healthcare, companies like Amazon, Walmart, Microsoft and even IBM are exploring blockchain technology to improve their efficiency.
When a person buys into a blockchain exchange-traded fund, it affords the person the right to make profit from the growth of the underlying assets according to the value of their investment in the fund. Hence, investors in the fund are paid yearly dividends if the fund generates profit.
BLOCKCHAIN ETF VS BITCOIN ETF
There is often a misunderstanding that the blockchain ETF and bitcoin ETF are the same. While they may both seem alike, it is important not to get the two ETFs mixed up. Blockchain plays a vital role for cryptocurrencies like Bitcoin, therefore, blockchain is a wide area, while bitcoin is an application of blockchain technology. Unlike blockchain ETFs that span through all kinds of companies using blockchain technology, bitcoin ETFs are based on the value of bitcoin, they only pursue the price of bitcoin in the market.
CONCLUSION
Notwithstanding the numerous benefits of investing in blockchain ETF, it is still in its nascent stage. Consequently, it has some setbacks which include the volatility of the market. It also carries a risk of non-performance, failure of the blockchain ecosystem and non-adaptability.
