Spot Crypto ETFs : How Do They Work as Securities Investment

A new approach to investing in digital assets allows doing so without the need to manage digital wallets and to understand the concept of private keys, while involved in the trading of cryptocurrencies. Many newbie crypto investors are now exploring the viability of the nascent security commodity known as the spot exchange-traded funds (ETFs).

First off, and in case you are wondering if ETFs are legal investments, be in the know that they are subject to securities laws and therefore regulated by government bodies like the Securities Exchange Commission and the Commodity Futures Trading Commission (CFTC). The CTFC is the government body that functions to protect the public from abusive, deceptive, and manipulative practices in order to perpetuate fraud in the sale of financial

Secondly, understand that a spot ETF is a financial instrument that does not involve direct ownership of a digital asset, which eliminates the need for custodial responsibility. In most cases, a fund manager is commissioned to take on the responsibility of managing, safekeeping and conducting the actual ETF trading activities.

Lastly, ETF investments are traded in traditional stock exchanges based on the spot price of the cryptocurrency to which the ETF is tied. Currently, the only cryptocurrencies acceptable for ETF trading are Bitcoins and Ethreum.

Exactly How Does Spot ETF Trading Work?

To further elaborate on how trading of Spot ETFS works, think of how investing on Gold ETF works. Investors are not provided with actual gold bullions or coins, when buying Gold ETFs.

Spot ETFs are purchased by placing a market order through a broker who, on your behalf, will buy the digital spot ETF at the current market price. Consider the purchase price plus purchase fees and costs as the minimum amount at which you will agree to sell your digital ETF in order to break even.

After purchasing the BTC or Ether ETF, it’s important for you to regularly monitor its performance and all other developments affecting your digital ETF as well as related cryptocurrency news that could cause a significant increase or decrease in the price of Bitcoins or Ethereums.

Your fund manager will give you advice if it’s wise to sell your digital ETF at the current spot price. The goal of course is to gain profit by selling your ETF at a price that is much higher than your original investment.

Fund managers, by the way, provide support to investors by undertaking research to use in analysing and in outlining the strategy and prospects that best fit a client’s stock, bond or other security investment like an ETF.