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1st Bitcoin ETF: How’s it Doing in 2021?

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The cryptocurrency market has generally had a stellar run this year, as Bitcoin and other decentralized digital currencies saw massive upticks. However, cryptocurrencies have been going through a rough time in recent weeks.

The usual volatility is still there, but Bitcoin and its peers saw massive declines during May. Several factors could be contributing to the downturn in the cryptocurrency space. From tweets by Elon Musk to regulatory crackdown fears, you can consider many reasons driving Bitcoin prices down.

The price of Bitcoin went to an all-time high of US$63,000 per unit in April. It fell off a cliff in May, going below the US$35,000 mark before relatively stabilizing around US$36,000. At writing, the cryptocurrency is trading for US$36,878.

Canada’s first Bitcoin ETF

Purpose Bitcoin ETF (TSX:BTCC.B) is Canada’s first ever Bitcoin-centric exchange-traded fund (ETF). The ETF offers investors exposure to the cryptocurrency without them having to buy any Bitcoin units themselves. As a unitholder for Purpose Bitcoin ETF, you can rely on returns from Bitcoin prices without owning any yourself, because the ETF holds the cryptocurrency for you.

Investing in the ETF theoretically provides you with a security layer as opposed to owning Bitcoin yourself. The ETF management is responsible for buying and storing the cryptocurrency tokens in its digital wallet, allowing you to reap the benefits of any capital gains without running the risk of losing access to your digital wallet.

Buying the ETF also means that you can enjoy returns from Bitcoin in a tax-sheltered account like the Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).

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Purpose Bitcoin ETF’s performance this year

Unlike other ETFs that diversify investment capital across several assets, Purpose Bitcoin ETF invests entirely in Bitcoin. It is only natural that Purpose Bitcoin ETF will decline as Bitcoin prices go through a downturn. Launched on February 18, 2021, the Bitcoin ETF enjoyed a strong run in the first few months.

As the Bitcoin downturn began in May, Purpose Bitcoin ETF followed. The Bitcoin ETF is down by 41% from its April 15th peak, and it does not seem to be doing too well these days.

Foolish takeaway

Cathie Wood, the most popular ETF manager worldwide, believes that Bitcoin is drastically undervalued. She believes that a single Bitcoin will soon be worth US$500,000. That figure undoubtedly seems like more than a stretch if you are not bullish on cryptocurrencies as a viable store of value.

However, her opinion might spark a lot of confusion among investors who are bearish on Bitcoin. Cathie Wood is considered to be one of the best in the business, because her actively managed ETFs have consistently provided investors with market-beating returns.

While she has a massive influence on investors, she could be wrong. Between regulatory concerns and environmental issues stemming from cryptocurrency mining activities, Bitcoin might never reach the newly fabled US$500,000 mark. Subsequently, Purpose Bitcoin ETF might not become as big.

Investing in the ETF could offer you more accessible exposure to the cryptocurrency without putting up too much cash upfront to buy Bitcoin units. It is also a more liquid asset that you can cash out of if the bet doesn’t work.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. 

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