This week, buzz was sparked in New York with the launch of the first Bitcoin exchange-traded fund (ETF) approved by the U.S. Securities and Exchange Commission. The ProShares Bitcoin Strategy ETF (BITO) made a surprising debut on the New York Stock Exchange, going down in history as the second most traded fund on opening day, with some calling it “a watershed moment for the trading industry. cryptocurrencies. “
But others, like the CEO of Arca, Rayne Steinberg, had “mixed feelings” about the events. Although he was glad that a long-awaited cryptocurrency investment vehicle was finally receiving regulatory approval (ending eight years of futility by US fund issuers), he had some misgivings about the product that ultimately received approval from the US. SEC, specifically the fact that it was futures based and did not track the price of Bitcoin (BTC) directly.
“We don’t think a futures ETF is a good way to get exposure to Bitcoin,” Steinberg said on a blog, adding: “Futures-based ETFs work for short-term trading, but they have huge tracking error problems over long periods, which is what most investors are looking for when it comes to exposure to Bitcoin.”
Markus Hammer, lawyer and director of the Hammer Execution consultancy, agreed with some others that the event was a milestone, but cautioned: “It is just a milestone with a long way to go”, further informing Cointelegraph: “As an investor, if you want to go long in crypto (and many do) you prefer a fund that follows ‘physical’ Bitcoin and not a derivative of it.”
The ProShares ETF is a bet on the futures BTC price movements. In other words, “the product ultimately deviates from the price of BTC itself, together with the fact that ProShares, as an issuer, is one more intermediary and, therefore, a counterparty risk for the investor.”
Futures or Physical Asset ETFs: Does It Matter?
Many institutional investors will likely wait for a physical-backed Bitcoin ETF (pegged to the spot market, not the derivatives market) to follow the actual price of the cryptocurrency, he told Cointelegraph, Campbell Harvey, Professor of International Business at Duke University. The BTC futures market is relatively small, he explained, “and buying pressure on futures will lead to a ‘negative return,'” meaning that:
“You are paying a premium to buy the futures each time you open the next contract. It is much more direct to buy the physical asset, but the SEC has not given any indication that it is willing to allow it.”
In an interview with CNBC shortly after the fund was launched on October 19, the SEC chairman, Gary Gensler, He suggested why the agency had only allowed this indirect route to the cryptocurrency space: “What we have here is a product that has been overseen for four years by a US federal regulator, the CFTC, and that has been involved in something that is within our jurisdiction. [es decir, la SEC] by the Investment Companies Act of 1940, so we have a certain capacity to bring it within the protection of investors. “
In other words, eThe new product will have two layers protection (CFTC and SEC) against possible hackers, manipulators and fraudsters.
Whatever your pedigree, ProShares fund obviously resonated with investors, by the end of its second trading day, it had reached $ 1 billion in assets under management, the first time an ETF has reached that mark.
“This is the first American ETF that is designed to track Bitcoin, and that certainly means something,” said Jeff Dorman, Arca’s chief investment officer, to Cointelegraph, “but it’s definitely not the product the market wanted nor is it one that financial advisers are comfortable offering, so it will likely lead to less adoption than a physical-backed ETF would have. “.
Some, including Harvey, saw the importance of the fact that Invesco, a leading ETF provider, announced on Monday that it was abandoning its tried to issue a BTC Futures ETF (at least for the moment) and would instead focus on “pursuing a physically backed digital asset ETF”, an Invesco spokesperson told Bloomberg.
Will pension funds rush to invest in the ETF?
Asked about pension funds, a cautious but huge subgroup within the institutional investor firmament, Dorman told Cointelegraph: “Pension funds have been doing their due diligence for years” regarding cryptocurrencies, but a Bitcoin futures ETF is unlikely to “move the needle” much with this class of investors. “But Yes the ETF leads to higher market capitalizations and more liquidity, so the mere growth in market size will make it easier for pension funds to invest comfortably. “
“The ProShares Bitcoin Futures ETF certainly raises the profile of Bitcoin in the institutional investor community,” said Ben Caselin, head of research and strategy at crypto exchange AAX, to Cointelegraph, and could make it easier for pension funds to gain exposure to cryptocurrencies. “However, there would have to be a greater variety of Bitcoin ETF types, including physically backed ones for larger players to enter the market with the backing of an ETF,” Caselin added.
Nigel Green, CEO of financial solutions company deVere Group, said in an emailed statement to subscribers that ProShares’s futures-based ETF “will inevitably attract a growing number and a wider range of active market participants, including those using pension funds and brokerage and retirement accounts”, but Dorman, for his part, stated that “ETFs are not really designed for institutional investors, it is more of a retail product.”
Any institutional investor who wants to get exposure to Bitcoin would already have different ways of getting it, explained Dorman, “So this will not change much. I think we will see more institutional adoption of all digital assets, but institutional adoption of Bitcoin is likely to be less than other digital assets that can be more easily understood and valued. We are already seeing how The new entrance ramps are gaining prominence: NFTs, ‘play-to-earn’ games and DeFi “.
Will it appeal to individual users?
What about retail investors? Will a futures-based Bitcoin ETF be attractive, or is it too technical?
“There are a lot of retail equity traders using trading apps who are not comfortable buying Bitcoin on the spot market, let alone withdrawing those funds to a private wallet,” Caselin said, adding: “In some jurisdictions, retail traders may not be allowed to trade on centralized cryptocurrency exchanges. ETFs open up new avenues to gain exposure to Bitcoin price action.”
On the other hand, you could say that The ProShares ETF’s “complex and separately priced underlying derivatives” add “an additional layer of complexity for those who have been wanting to easily and safely buy Bitcoin”, said John Iadeluca, Banz Capital CEO, to Cointelegraph, while Harvey added that “retail investors can easily get exposure to cryptocurrency using existing brokers like Coinbase or Robinhood. They can bypass the ETF and avoid futures.”
Even so, “an ETF is a traditional financial product that can be publicly traded on the stock market like a stock”, Hammer pointed out. “This will certainly make it attractive for an unsophisticated retail client to participate in the crypto space through their existing trading account and familiar (centralized) banking system.” They don’t have to deal with hot or cold storage decisions, cryptocurrency exchanges, fraud, tax issues, and the like. “Comfort does the magic here.”
Is an Ether ETF within the means?
Bitcoin isn’t the only star in the crypto galaxy, of course. In fact, its dominance has been declining in the last year, and there is even talk of an eventual “flippening” in which Ether (ETH) exceeds the market capitalization of Bitcoin. You may wonder: How far is an Ether ETF from being approved by the SEC?
“Since Ethereum is the second largest cryptocurrency in the world, the possibility of an Ethereum ETF is high,” said Jay Hao, OKEx CEO, to Cointelegraph, “but still needs time to mature.”
“Ethereum has a track record of tracking Bitcoin in terms of price action and attention”, Caselin said. “However, unlike Bitcoin, Ethereum would not be suitable as a legal tender. Furthermore, Ethereum is still in its experimental phase, and although the project has performed exceptionally well, there are still questions surrounding what the transition to it will look like. [protocolo de consenso] proof-of-stake “. For now:
“Ethereum is more about the platform than it is about the asset. I don’t see an Ethereum ETF in the near future until the space has matured more.”
Iadeluca disagrees with that idea. “I think the approval of an Ethereum futures ETF is much more likely now “, particularly as Ethereum-based investment products have closely followed the developments of institutional Bitcoin products within major markets. “However, this may take some time.”
A major turning point?
In short, what place do the events of the week occupy on the scale of historical importance of cryptocurrencies? Was this, indeed, a “decisive” moment in which everything changed?
“This is certainly an important milestone for the continued development of the cryptocurrency industry,” Hao told Cointelegraph. Greater attention and involvement from institutional investors can only help mass adoption. “As the adoption rate of Bitcoin and cryptocurrencies grows, the industry will continue to flourish.”
Harvey, however, warned of the possibility of succumbing to the hype. “Overall, the whole space is held back by regulatory uncertainty, and additional guidance is needed,” told Cointelegraph, while Hammer added that “what the market is looking for is a physical ETF rather than a cryptocurrency futures ETF.” He also agreed that the market still lacks regulatory clarity:
“As long as a uniform crypto taxonomy is not defined, responsibilities are not clearly assigned between supervisory authorities and there is no legal framework that regulates cryptocurrencies in general, and especially DeFi tokens and stablecoins, nothing is gained.”
ProShares breaking the ETF barrier remains a “bittersweet” moment for Dorman. On the one hand, it is “great to see another milestone being reached”, but it is also disappointing because “it is another defective product with high commissions and a significant tracking error that is exclusively traded on an exchange chosen by the SEC.”
In the same way, you must not lose sight of the forest because of the trees. This week’s events could be seen as a kind of test, “to see if mainstream investors are prepared to include cryptocurrencies in their portfolios alongside other assets, such as stocks and bonds,” Green said. “And it seems, judging by the reaction, that they are.”
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