October 05, 2022
Chances are you’ve heard that a Bitcoin ETF has recently been approved in the US, causing Bitcoin maximalists to inflate their feathers. ETFs are considered the pinnacle of crypto mass adoption, similar to 2021’s Coinbase IPO and 2017’s Bitcoin futures trading.
What is the Bitcoin ETF?
ProShares ETF ($BITO) is the first ETF approved by the SEC in the United States–it debuted on the New York Stock Exchange on Tuesday, the 19th of October. Still, ProShares ETF is unlike other ETFs, such as in Canada, where investors buy into the actual spot price of Bitcoin. Instead, ProShares ETF offers “bitcoin returns” through “managed exposure to bitcoin futures contracts,” which according to Ben Cruikshank, is a “less efficient form of ownership.”
The newly promulgated ETF is a futures ETF, where people buy into futures contracts that have an expiration date. Investing in ProShares means people buy into agreements to purchase or sell Bitcoin at a specific set date at a particular price. But, there is a twist to it!
Does the intrinsic value of ETFs hold up for this Bitcoin ETF?
Some see ETFs as less risky because they’re regulated by the SEC, compared to “over-the-internet” investment tools such as exchanges like Coinbase or Binance, which are only partly regulated. On the other hand, one argument for the lack of crypto ETFs is because of regulatory hurdles rather than individual investor concerns about a lack of funds control and losing their private keys.
The newly approved ETF can be much riskier than spot buying because it has many moving parts such as expiration dates, fees, and contango, where long-term futures contracts are trading at a higher price than shorter period contracts, impacting investors’ returns. Jodie Gunzberg, director of Coindesk Indexes Meaning, said that ProShares is risky because it confuses people. Instead of buying directly into Bitcoin, they are purchasing futures contracts.
However, ProShares ETF is a step forward for Bitcoin integration into the mainstream, because it opens the door for additional products to enter the market. While the SEC might still be wary of approving direct Bitcoin ETFs, they are more likely to allow products that have direct tangencies with Bitcoin investments.
Volt Crypto Industry Revolution and Tech ETF is one byproduct of crypto market investment as it tracks companies that have direct exposure to Bitcoin, including Twitter, Tesla, and Microstrategy. Thus, investors have more options to get exposure to cryptocurrencies indirectly, for now, pressuring financial institutions to lower their fees.
Why is there just now a Bitcoin ETF?
The SEC argued that direct Bitcoin ETF’s present risks to investors because crypto market prices are easily manipulated in the short term. However, futures contracts can be “sufficiently mitigated,” aligning them with investors’ expectations.
With China exiting the cryptocurrency landscape after they banned cryptocurrency transactions, the US could have an opportunity to become a leading cryptocurrency hub and draw additional capital.
Reluctancy to approve ETFs is delaying their adoption efforts. On the other hand, Canada has made Bitcoin ETF exposure much more accessible, offering at least 8 cryptocurrency ETF alternatives with exposure to large market capitalization tokens including Bitcoin and Ethereum.
What’s next for Bitcoin?
Reports about ETF approval have rippled through the market. Bitcoin is nearing its six-month ATH (All-Time-High) as the prices of Bitcoin broke a psychological level of $60,000.
Cryptocurrency ETFs can be catalyzing agents for mass adoption. However, they can be an example of investors “buying the rumor, selling the news,” similar to any mass adoption indicator like El Salvador or Tesla accepting Bitcoin. John Detrixhe highlighted that events that could “legitimize” Bitcoin as a trusted and safe investment turned out to be high points during a brief trading cycle with prices retracing to their expected valuations.