- The ProShares bitcoin-linked exchange-traded fund will make its debut officially on Tuesday.
- A futures-based ETF won't allow investors to buy bitcoin directly but is still a significant regulatory feat for the crypto industry.
- Three other bitcoin futures ETFs are expecting to move forward with their launches this month.
The first bitcoin-linked exchange-traded fund will make its debut officially on Tuesday.
The much-anticipated ETF from ProShares, which will track the bitcoin futures market, will begin trading Tuesday on the NYSE under the ticker "BITO," the company confirmed.
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"We believe a multitude of investors have been eagerly awaiting the launch of a bitcoin-linked ETF after years of efforts to launch one," ProShares CEO Michael L. Sapir said in a statement Monday. "BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider ... or are concerned that these providers may be unregulated and subject to security risks."
The price of bitcoin climbed more than 2% on Monday to $62,041.84, according to Coin Metrics. Many investors are watching to see if bitcoin will jump above $64,800 this week to reach a new all-time high.
Bitcoin futures ETFs will also be a big regulatory feat for the still young crypto industry, which has long struggled to cement crypto's place in the highly regulated financial world. Four more ETF providers are hoping to move forward with trading this month. A second futures-based ETF could come as soon as this week.
"This will be probably the biggest endorsement from the SEC for crypto," said Ian Balina, CEO of the data and analytics firm Token Metrics, who also noted that regulators globally have been at odds with the crypto industry for years and "impeded the acceptance of crypto" by retail investors. "This will be a floodgate of new capital and new people into the space."
This crop of ETFs falls short of what the crypto industry ultimately wants: funds that invest directly in bitcoin.
Since 2017 at least 10 asset managers have sought approval to launch spot bitcoin ETFs, which would give investors a vehicle through which to buy bitcoin itself, rather than derivatives tied to it. They were all rejected by the Securities and Exchange Commission, then headed by Jay Clayton, which maintained none of them were able to show the market is resistant to manipulation. In an August speech, SEC Chair Gary Gensler said he would favor investment vehicles that include futures, and a rush of bitcoin futures ETF applications followed.
Investing in a futures-based ETF would not be the same thing as investing directly in bitcoin. A futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. A futures-based ETF tracks cash-settled futures contracts, not the price of the asset itself.
"The all-in cost of a futures-based ETF could be in the 5% to 10% range once you take into account the annualized roll yield," said Matt Hougan, chief investment officer at Bitwise Asset Management, which has its own application for a bitcoin futures ETF in line at the SEC.
Annualized roll yield is the return a futures investor captures on top of the change in the price of the underlying asset.
"Futures-based ETFs are also more confusing," Hougan added. "They have challenges like position limit and official dilution, and they can't get 100% exposure to the futures market."
There are four bitcoin futures ETFs lined up for review in October, from ProShares, Valkyrie, Invesco and Van Eck. They'll be allowed to move forward and list 75 days after their paperwork was filed if the SEC doesn't intervene within that period.
Many hope the allowance of these ETFs will pave the way for a spot bitcoin ETF in the not too distant future. Beyond Gensler's preference for one based on futures, the market has also become much more developed in the short period since the first wave of ETF applications. The SEC has challenged the crypto industry over the years to prove there's a large regulated market trading alongside the spot bitcoin market. According to Bitwise research submitted to the SEC last week, it can.
"The bitcoin market has matured to the point where the CME bitcoin futures market is actually the leading source of price discovery in the entire bitcoin world," Hougan said. "Prices move on the CME market before they move on Coinbase, Kraken, FTX … and as a result it satisfies the SEC hurdle for the potential approval of a spot-based ETF."
He added that data also suggests there's more capital committed to the CME bitcoin futures market.
"The crypto market was first led by retail exchanges like Coinbase and then dominated by things like BitMEX and Binance, and no one has updated the record or done the homework, and the homework shows the market has changed," Hougan said.