13:06 06.06.2020
ikrom Ergashev (Neironix)

Cryptocurrency ETFs – An Easier and Friendlier Way to Invest in Digital Assets

Cryptocurrency ETFs have been popping up since last year in the stock market and gain more and more attention from both individules and businesses, with promising avenue and potentially high ROIs.

What is a cryptocurrency ETF?

For those who still don’t know what a cryptocurrency ETF is, a crypto ETF, in theory, works like any other ETF. It would track one or more digital tokens, and trade like a common token on an exchange. As a result of the fact that investors do not need to purchse and manage the token directly, crypto ETFs are growing into a choice of investors looking to break into the cryptocurrency market directly.

As a growing number of exchange platforms have launched or are going to launch their crypto ETF products, some investors feel difficult to make a choice. After trading of the several popular ETFs in the market, a special newly launched one -Smart Token by Bithumb Global, has been brought into my attention.

The Nature of the Bithumb Global Smart Tokens

The Smart Tokens are primarily tradable assets. These are designed to give the users leveraged access to certain underlying assets, like BTC, ETH, XRP or BCH. Nevertheless, the Smart Tokens are designed to be much easier to operate than the conventional processes of handling margin trading or short selling positions. The user is spared all the details and the tedious process, along with the high fees and substantial risks involved in the sophisticated trading processes.

Many leveraged tokens are on the blockchain and therefore can be traded on different markets but the Bithumb Global Smart Tokens being off-chain are to be traded within the exchange platform. While this reduces the liquidity of the tokens, it increases their stability and makes them immune to distress selling and other shocks.

A rebalancing mechanism is required for the smooth functioning of the Smart Tokens. These mechanisms are run by algorithms that help the system maintain the target leverage, which is 1x for all the Smart Tokens. The algorithm acquires or gets rid of additional positions in order to meet the target leverage at any point in time when the leveraged exposure is higher or lower than the target leverage. Being implemented through an algorithm, this is a very transparent process, which does not need to be driven by any human intervention. The change in the basket is also made public after the rebalancing.

But there arises one important question in this respect; about how safe will a person’s holdings remain post a balancing event? While it is very safe, in certain dramatic market events there can be some risk of the users’ holdings getting highly devalued because of this market crisis, which is true for any tradable asset in the financial markets. However, in the case of a leveraged token, not only are the profits leveraged but so are the risks.

What Smart Tokens are now available on Bithumb Global?

The Smart Token that was initially launched was the BTCS (1x short Bitcoin), which users can benefit from during bear market conditions. The opening price of each smart token is $100usdt.

Apart from BTCS, Bithumb Global exchange’s platform has listed other new Smart Tokens like LTCS, XRPS, ETHS and BCHS, corresponding to Litecoin, Ripple, Ethereum and Bitcoincash tokens, respectively. All these tokens work on similar principles. Users can have access to this service either through the Bithumb Global app or the website.

The transaction fee for Smart Tokens is 0.1% and it has a daily management fee of 0.05%, which is very low. And the holding cost, therefore, becomes minimal.

Cost-Benefit Analysis of Smart Tokens: Is This the Financial Product You Need?

If you are looking to invest in crypto, but do not know the nitty-gritties of the market, a Smart Token might be the right product for you. If you are not a full-time investor and are looking for only a short time investment, Smart Tokens can leverage the value and opportunities of crypto assets for investment.

But for a long term investment, due to all the charges, and the rebalancing mechanism it might not be worth the risk. Therefore, prior knowledge about the risks involved in the products needs to be considered by all prospective investors before investing in the Smart Tokens.

Nevertheless, for the amateur and the newbie, the opportunities outweigh the risks by far. The Bithumb Global is dedicated to selecting the best basket of investment and designing the algorithm in a way, that the investors have the best outcomes possible in all market situations. In this respect, this is a perfect product for anyone trying to acquire a short or medium term, short selling position in crypto assets. And even for long term investment, a seasoned investor by taking note of the minute details of the product can land a long term gain.

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