What the first bitcoin futures ETF means for the cryptocurrency industry

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The value of Bitcoin (BTC) has crossed the threshold of $ 66,895 for the first time in its history.

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This week marked a milestone for cryptocurrency as investors began trading the first U.S. bitcoin futures exchange-traded fund, overtaking other ETF launches, and another followed on Friday.

These funds invest in bitcoin futures, or agreements to buy or sell the asset later at an agreed price, rather than bitcoin directly.

The new products allow trading through regular investment accounts, avoiding the hassle and security concerns of cryptocurrency exchanges.

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While the new offerings don’t meet what the industry ultimately wants – with ETFs investing in the currency itself – it hasn’t dampened enthusiasm for the first launch.

The ProShares Bitcoin Strategy ETF (ticker: BITO) had one of the biggest early days on record for ETFs, bringing in $ 550 million from avid crypto investors. Overall, more than $ 1.01 billion in stocks changed hands, according to Morningstar.

Additionally, the price of bitcoin climbed more than 4% on Tuesday to $ 64,206.51, according to Coin Metrics, and hit an all-time high of $ 66,900 on Wednesday, breaking the previous intraday high of $ 64,899 from mid-April.

“The initial intention [of bitcoin], and certainly still the intention of many, was to try to turn traditional finance upside down, ”said Ben Johnson, director of global ETF research for Morningstar.

“Instead, mainstream finance has grabbed bitcoin in its tractor beam, coiled it up and turned it into something that Wall Street will make millions, if not billions, by creating this whole new ecosystem,” he said. he declared.

Bitcoin ETF delayed approvals

Companies have been vying to launch America’s first bitcoin ETF in almost a decade. But the Securities and Exchange Commission was slow to adopt the asset, citing concerns about the lack of regulation and the potential for fraud and manipulation in the bitcoin market.

“General conservatism is a model among US regulators,” Johnson said, pointing to the landscape littered with updated bitcoin ETF deposits, abandoned apps and others gathering dust.

Previously, most Bitcoin ETF applications were based on so-called spot markets, or invested directly in currency, explained Stephen McKeon, associate professor of finance at the University of Oregon at Eugene and partner of Collab + Currency, an investment focused on cryptocurrency. funds.

However, there was a change in August when SEC Chairman Gary Gensler signaled that the agency may be more open to a bitcoin ETF backed by futures under the Investment Company Act of 1940. , which governs mutual funds and can provide “significant investor protection”.

I don’t think the SEC is in a rush to go ahead and allow direct bitcoin investment through ETFs anytime soon.

Ben johnson

Director of Global ETF Research for Morningstar

The change caused a flood of filings ahead of this week’s approvals.

With the Commodity Futures Trading Commission overseeing US bitcoin futures and the ETF wrapper under SEC jurisdiction, regulators may offer some protection to investors, Gensler said on CNBC’s “Squawk on the Street” this week. . But it is still a “highly speculative asset class,” he warned.

While the SEC is expected to approve a handful of other bitcoin futures ETFs, it’s unclear if and when the agency will be able to give the green light to an ETF investing in the currency itself.

“I don’t think the SEC is in a rush to go ahead and allow direct bitcoin investment through ETFs anytime soon,” Johnson said.

What to know before investing

While there is immense interest in bitcoin futures ETFs, many experts suggest taking the time to learn more about assets before investing.

“It’s like Christmas in October for high frequency traders,” Johnson said, explaining how massive price swings can appeal to some investors.

While funds can have a strong correlation with bitcoin, the asset will not reflect the value of the currency as it tracks the price of futures, which can be unpredictable.

“I think you have to be extremely careful and you have to prepare for immense volatility,” said Michael Bisaro, president of StraightLine Group in Troy, Michigan, which ranked 92nd on CNBC’s FA 100 list for 2021.

There might be a place for it, but it can be “massively dangerous” if it becomes a big part of someone’s wallet, he added.

However, a small amount of paddling may not be a problem once retirement and other financial goals are on track, some advisers say.

“I have no problem with clients investing in it based on their budget or lifestyle,” said certified financial planner Jordan Benold, partner at Benold Financial Planning in Prosper, TX, explaining how some have “fun money” on the side.

But as more crypto-based products hit the market, investors may soon be faced with a dizzying array of portfolio choices.

“Bitcoin is just the tip of the iceberg,” McKeon said. “We are going to see ETFs exposed to many different crypto assets in the coming years.”


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