What does the new Bitcoin futures ETF mean for investors?
After the launch of ProShares Bitcoin Strategy Exchange traded Fund on the New York Stock Exchange Tuesday, the cryptocurrency continues its rollercoaster ride. This allows investors to buy the digital coin via futures contracts and not own it outright.
According to some financial analysts, this will be a major deal that will push the price up to $100,000 and above. This will give institutional investors the security and confidence to invest Bitcoin.
So far, optimists feel vindicated.
ProShares Bitcoin Strategy ETF began trading under the ticker Bito on the New York Stock Exchange. It drew nearly $1 billion in trades, making it the third largest ETF launch ever. The ETF’s price had increased by 4.8 percent to $41.94.
Although it is not the first Bitcoin ETF, it is the first one for the US. The XBT Bitcoin Tracker in Europe was launched in 2015 on Nasdaq’s Nordic Exchange. In February, the Purpose Bitcoin Exchange traded on the Toronto Stock Exchange. These have been used by some US investors to get exposure to Bitcoin instead of waiting for approval from the Securities and Exchange Commission.
The ProShares Bitcoin Strategy ETF is listed in the United States, giving it exposure to the largest investment market in the globe.
Fundstrat’s Tom Lee claims that the first-year inflows could surpass $50 billion. This could boost the Bitcoin price up to $168,000.
Although the SEC has not yet approved Bitcoin futures ETFs that track futures prices, it is not denying them approval. Gary Gensler, chair of the SEC, believes that they provide investors more protection than ETFs which trade the spot Bitcoin price.
Investment Mastery’s chief executive Marcus de Maria believes Bito will push Bitcoin’s value higher than $64,760 today. Bito makes it easy and safe for institutions and individuals to invest in Bitcoin without worrying about being hacked, forgetting their keys or losing their access to their holdings.
“This has allowed some of the largest investors in the world to safely get into cryptos, and many more will follow,” Mr de Maria said.
This is a safer way for investors to get on the Bitcoin rollercoaster. Nigel Frith (lead analyst at Bitcoinmoney.net) says. It gives investors exposure to Bitcoin, while also avoiding hacking and unregulated exchanges. It’s a great step towards mass adoption of cryptocurrency.
Frith anticipates that more funds will follow. “There’s been an increase in demand for futures ETFs, and I don’t see it continuing in the near term.”
Invesco has canceled plans to launch its US Bitcoin futures ETF. It may be unhappy with coming in second, but will still attempt to launch a physical ETF.
VanEck has been fighting since 2017 to bring a Bitcoin ETF on the market and isn’t giving up.
Vijay Valecha is the chief investment officer at Century Financial Dubai. He says that while buying Bitcoin will still be risky, ProShares Bitcoin Strategy ETF will have additional rollover costs and spreads for futures contracts.
“The ETF is more volatile than usual, particularly during settlement expiry periods and monthly open or closed periods.”
He says that the correlation of existing Bitcoin ETFs is mixed. Over the past year, spot Bitcoin has been lagging Grayscale Bitcoin Trust by 160 percent.
To see how the launch goes, investors will be watching from the sidelines, Mr Valecha said. It will need large participation from prominent institutional players, such as mutual fund managers and market makers, in order to succeed. The ETF that has the highest volume will be the best.
He says that the ProShares Bitcoin Strategy ETF will be more appealing to intraday traders than long-term investors.
Ross Thompson, a finance and accounting lecturer at Arden University, states that investors no longer have to worry about digital wallet security and custody.
“The ETF should be attractive to those who are concerned about the lack of crypto regulation, its inherent security and are still keen to get a piece.
He warns that they must be cautious as this could lead to further inflation of the Bitcoin bubble. “Bubbles have a tendency to burst.”
Antony Portno, founder of Traders of Crypto says that the ETF is based upon futures and will not increase Bitcoin demand directly. It could, however, surprise everyone by being bearish.
The price crashed quickly after Bitcoin futures were listed at the Chicago Mercantile Exchange in 2017.
According to Mr Portno, Bitcoin will continue to be volatile. Investors should buy low and sell high. It would not surprise me if Bitcoin traded at $50,000 to $60,000 by the close of the week. In a few weeks, the next speculative event may take over and surpass its record high.
Traditional ETFs give retail investors the ability to hand over investment decisions and market data to experts, Katharine Wooller (UK managing director of cryptocurrency wealth platform Dacxi) says. There is a catch in this situation. “With Bitcoin, there is no performance data for fund managers.”
She claims that the ETF is betting on price volatility by trading future price movements. “Trying to predict the Bitcoin’s ups and downs is like trying to pin the tail on a donkey.”
The majority of Bitcoin is currently locked up in long-term holdings. Prices naturally rise when there are few sellers. She says that in these conditions, it would be difficult for futures traders to make money.
She says that investors who believe Bitcoin’s price will rise to $100,000 over the long-term would be better off buying and holding Bitcoin.
Ms Wooller says futures trading doesn’t support DeFi’s global vision of decentralised financial infrastructure. “It’s all about ‘gaming’ the market rather than having any real commitment for crypto as the catalyst to a more sustainable global economy.
Roman Matkovskyy, a Rennes School of Business expert on cryptocurrencies, warns that the Bitcoin futures ETF could diverge from Bitcoin’s price.
It is difficult to bet on Bitcoin’s price movements, as it is volatile and speculative.
Mr Matkovskyy said that no one can predict how Bitcoin futures ETFs might trade. However, investors will need to pay a premium while waiting to find out. ProShares will charge 0.95 percent per year for the Bito funds, while the average equity ETF charges 0.71 percent.
Mr Matkovskyy states that ETFs of Bitcoin futures will be sold through brokers accounts. They can be traded as stocks and don’t require an account on a cryptocurrency exchange. Investors will be able to keep all of their holdings under one roof which will simplify tax reporting and simplify performance reporting.
He says that Bitcoin futures ETFs should be left to more sophisticated institutions than private investors.
Chris Muller, director for audience growth at money website DoughRoller.net, said that the new offering is about’starting on the fringes’ of investing.
“It is better that nothing, but for now it will not be traded without formal approval by the SEC.”
It is legal to trade ETFs, but its future is uncertain, according to Mr Muller.
“Predicting the ups or downs of Bitcoin is difficult enough. Bito investments can carry more risk than other investments, but there may be little extra reward.
He advises against investing in cryptocurrency exposure at a premium via stocks like Marathon Digital Holdings ($Mara) and Riot Blockchain ($Riot), as well as Bitcoin investor MicroStrategy (MSTR) or the Grayscale Bitcoin Trust (GBTC).
Stocks and cryptocurrency trading can be seen as two distinct entities. According to Mr Muller, “Getting exposure to one entity through the other feels like building a bridge between an apple or a tomato.”