How does a Bitcoin ETF work? The entity that manages the Bitcoin fund acquires certain amounts of the currency, then divides it into a number of shares, then puts it into circulation like shares, and it is bought and sold in dollars, in addition to the possibility of converting it into Bitcoin directly through the fund, to those who own the standard convertible amount.
How does a Bitcoin ETF work?
In the CME futures market, bitcoin contracts can be bought, and can also be short sold, which means that the currency can be bet on the rise or fall, through bitcoin contracts, where one contract contains five bitcoins.
A deposit of $94,000 is required for each contract, i.e. since one contract is five bitcoins , which are currently worth about $200,000, there must be a financial security of $94,000 for the transaction, and this security is much higher than the security required for other future commodities due to the fact that the risks Bitcoin is higher than others.
There is relatively high trading on bitcoin futures contracts, with an average of about six thousand contracts per month, or 30,000 blocks, which is equivalent to about $1.5 billion, knowing that settlement at the end of the contract term is in dollars, not in bitcoin.
How does a Bitcoin ETF work?
How does a Bitcoin ETF work?
Buying bitcoins from the options market
For those who have the willingness and ability to take a lot of risk in order to achieve a return much higher than the price of the currency only, they can do so with options contracts on Bitcoin.
But again, this is a method that does not suit most people, due to the possibility of losing all your invested capital, which means that in addition to the risks inherent in Bitcoin, there is another risk related to the nature of options work. shrinkage.
In the attached table, we find, for example, that at the current price of Bitcoin, which is about 48 thousand dollars, there are call contracts that expire in December 2021 at an execution price of 100 thousand dollars, which are offered for sale at a price of $ 8775. Meaning, the person is now paying $8,775.
And then it starts making a net profit if the bitcoin price rises above $108,775 between now and the end of 2021. For example, if the price of the coin increases after six months to $120,000, the value of a person’s account would be $20,000, compared to the purchase cost of $8775.
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Bitcoin price
If a person believes that the price of Bitcoin will collapse dramatically. He can buy the offers shown in the table, from which contracts can be purchased at an execution price of $30,000 at a cost of about $5,000.
Thus, he starts making profits if the price of the coin falls below $30 thousand. Note in the table that the difference between the bid and ask prices is very large, due to the large bets that the currency will fall. In our example here, we assume that anyone can buy between the bid and ask prices.
High-risk cryptocurrencies as investment methods. But there are growing convictions about their importance as future payment methods, so that they are used in commerce in general, and e-commerce in particular. Without a central authority to complete the payment process, and therefore at lower costs than what is available today through financial institutions.
As for cryptocurrency being an alternative investment method. This is a controversial issue. There are those who believe that the rise in cryptocurrency prices is nothing but speculation with the aim of seizing quick opportunities to make temporary profits.
In any case, there are several ways to profit from the movement of these currencies with varying degrees of risk. Through direct purchase, through stocks and exchange traded funds, or through futures and options contracts.
