Bitcoin ETF: Opportunities and risk

Di Wu *

Naveen Jindal School of Management, The University of Texas at Dallas, USA.
 
Research Article
International Journal of Science and Research Archive, 2024, 12(02), 848–853.
Article DOI: 10.30574/ijsra.2024.12.2.1296
Publication history: 
Received on 05 June 2024; revised on 17 July 2024; accepted on 19 July 2024
 
Abstract: 
The year 2024 witnessed a major development in the cryptocurrency industry with the long-awaited approval of spot Bitcoin exchange-traded funds (ETFs). This innovation provides investors with a new, regulated path to gain exposure to Bitcoin through a familiar investment vehicle (Kumar et al., 2024). However, unlike traditional ETFs that directly hold underlying assets, Bitcoin ETFs rely on a creation and redemption process managed by authorized participants (APs). This unique structure introduces distinct characteristics in terms of premium/discount behavior compared to traditional ETFs.
This paper investigates the premium and discount patterns observed in Bitcoin ETFs during first four-month period (January 11th, 2024, to May 17th, 2024). Our analysis reveals that these patterns differ significantly from those observed in traditional index ETFs, potentially exposing investors to additional risk factors. By identifying and analyzing these risk factors associated with Bitcoin ETF premiums/discounts, this paper aims to achieve two key objectives:
·         Enhance market understanding: Equip and market and investors with a deeper comprehension of the unique liquidity risks inherent in Bitcoin ETFs.
·         Provide a clearer risk management frameworks: Offer a clearer perspective on the risk-return profile of digital asset ETFs, specifically focusing on Bitcoin ETFs.
Through a thorough analysis of premium/discount behavior and the underlying factors contributing to it, this paper strives to contribute valuable insights for investors navigating the evolving landscape of digital asset investments
 
Keywords: 
Cryptocurrency; Risk Management; ETF; Premium and Discount; Bitcoin
 
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