ETF
ETF is an acronym that stands for Exchange Traded Fund. ETFs replicate the performance of a benchmark, i.e. a reference index containing various financial securities, by reproducing its performance. By definition, each ETF is passively managed because it attempts to faithfully reproduce the value of the benchmark index simply by holding the underlying financial products, or derivative contracts. By contrast, a traditional investment fund seeks to outperform the reference index by actively trading securities in the market. Compared to index funds, ETFs have lower costs and management fees, but require the payment of a commission to an intermediary for each transaction made.
ETFs fall under the classification of ETPs (Exchange Traded Products), a category that also includes ETNs (Exchange Traded Notes) and ETCs (Exchange Traded Commodities). Although they are all part of the category of financial instruments that replicate the performance of a reference index, ETNs and ETCs are not funds but debt instruments. Exchange Traded Commodities, specifically, replicate the performance of commodities (including, for example, gold or silver).
Investing in ETFs means diversifying your portfolio, i.e. automatically distributing your capital among different securities and/or market sectors, thus reducing risk. An ETF portfolio can include bond ETFs, which by definition replicate the performance of bond indices, equity ETFs, which benchmark equities, and commodity or real estate ETFs.
Bitcoin ETFs are funds that replicate the performance of BTC. By investing in this type of ETF, investors can take advantage of Bitcoin’s trend, without buying it directly: there is therefore no need to open a wallet or rely on crypto exchanges.
Choosing a BTC ETF also means more security from a legal point of view, as these financial products are more thoroughly regulated than cryptocurrencies in general. In states where it is illegal to hold cryptocurrencies, investing in Bitcoin ETFs could allow investors to gain exposure to BTC without violating any regulations.