The first bitcoin exchange-traded fund is expected to begin trading Tuesday, making it the most widely traded cryptocurrency available to most investors with a brokerage account. See what it means here.
What is happening?
ProShares filed plans on Friday, laying the foundation for the launch of its bitcoin strategy ETF. Other funds are expected to follow over the next two weeks as the Securities and Exchange Commission considers additional proposals made in August by asset managers Valkyrie Investments, Invesco and VanEck to sell bitcoin ETFs to investors.
According to people familiar, the companies are not expected to turn down their offers, although the SEC can approve, reject or defer any or all applications.
New ETF proposals are subject to a 75-day SEC review period. If regulators do not object, the funds are cleared for trading.
Monday will mark the end of the review period for the ProShares fund. After four entities earlier this month, five other firms have applied with the SEC to list similar funds, and a decision on those is likely to be made in the coming months.
The asset-management industry has been pushing for years to sell bitcoin ETFs, trying to capitalize on the increase in the value of digital currencies. Some in the industry say that investors should “allocate” crypto, which means devoting some small amount of their portfolio to the asset class in order to boost returns and diversify holdings. According to industry people, a bitcoin ETF would make it easier to do so. .
What are Bitcoin ETFs?
An exchange-traded fund is an investment that tracks the price of a basket of underlying assets and is tradable on US stock exchanges. In this case, the fund would track the price of bitcoin futures traded on the Chicago Mercantile Exchange instead of bitcoin.
Why are these ETFs futures based?
These funds will not hold actual bitcoins. Instead they will deal in bitcoin futures, which trade separately on regulated US exchanges such as the CME.
Regulators prefer futures-based ETFs because the SEC lacks jurisdiction over crypto trading venues that are not registered as exchanges in the US. The SEC says that leaves investors vulnerable to fraud and manipulation because regulators have no idea of where bitcoins are coming from and how prices are being set.
The SEC has not approved exchange-traded funds that directly hold bitcoin or other cryptocurrencies, and the agency has suggested that it would not support such a move at this time.
What else is in these funds?
ProShares said in its prospectus that the fund will primarily invest in bitcoin futures. Previously the firm also planned to buy shares in Canadian ETFs and pooled investment trusts that hold bitcoin as a way to get a more direct line of exposure to the actual coins.
Other asset managers, including Invesco and VanEck, have proposed holding similar assets beyond bitcoin futures.
The SEC has indicated that it prefers futures-based ETFs to crypto, thanks to the monitoring considerations outlined above, so there is some expectation in the industry that all funds will end up as plain-vanilla bitcoin futures ETFs.
ETFs appeal to investors who want to buy a bundle of assets with ease. Otherwise, investors would have to buy them outright.
Are there any trade-offs with futures?
Some crypto enthusiasts complain that futures-based ETFs will not fully track bitcoin due to the cost of buying and selling futures contracts and other concerns. He argues that investors in bitcoin futures ETFs could be saddled with shoddy performance if crypto continues to rise.
Is this why bitcoin is going crazy again?
Yes. Bitcoin has boomed in recent days, with fans arguing that the launch of a bitcoin ETF will increase the legitimacy of the cryptocurrency and make it easier for institutional investors to gain exposure.
This story has been published without modification to the text from a wire agency feed
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