The long-awaited futures-based Bitcoin ETF has launched. Did the SEC’s blessing legitimize Bitcoin in the mainstream finance world?
After dipping below $30,000 in June, Bitcoin (BTC) went on a nearly four-month rally, appreciating by more than 100%. On Friday, it was able to recapture the $60,000 level after closing the day with a 7.56% spike. The ensuing rally was attributed to the excitement around the SEC giving the green light on the ProShares Bitcoin Futures exchange-traded fund (ETF). Bitcoin has since successfully defended its current price level and managed to inch closer and closer to its all-time high valuation of $64,899.
The listing of ProShares Bitcoin Strategy ETF on Tuesday is believed to provide an additional thrust for Bitcoin and cryptocurrencies to mainstream legitimacy. However, a key fact about the new Bitcoin ETF is that it doesn’t invest in Bitcoin directly but instead allocates a portion of its assets to BTC futures contracts.
“BITO”
Listed as “BITO” on the New York Stock Exchange, ProShares Bitcoin Strategy ETF is the first of its kind, which some argue is 10 years in the making since several Bitcoin ETFs were either held up or blocked entirely by the United States Securities and Exchange Commission, or SEC.
Some of the high-profile applications that are still in limbo are the Bitcoin ETFs of WisdomTree and VanEck. ProShares got the green light because of a particular distinction: ProShares Bitcoin ETF is a futures-based ETF, and it is also filed under mutual fund rules.
The SEC prefers this structure since it lacks jurisdiction over cryptocurrency trading venues that aren’t registered as exchanges in the United States.
Fund breakdown
As stated on the ETF’s prospectus filed with the SEC, the fund will allocate 25%–30% of its assets to Bitcoin futures contracts. It also notes that it plans to invest in the securities of ETFs organized and listed for trading in Canada as well as other pooled investment vehicles.
These positions are intended to manage inflows and outflows in response to unusual market conditions, increases in margin requirements, or if it becomes too impractical for the fund to obtain exposure to BTC futures. The bigger chunk of the fund’s assets will go to money market instruments, which are then subdivided into U.S. Treasury bills, repurchase agreements and reverse repurchase agreements.
Boosting mainstream acceptance
As mentioned, a Bitcoin ETF helps the entire market to gain access, much like the Coinbase listing of a stock exchange earlier this year. This is because investors who may not have direct access to cryptocurrencies but own brokerage accounts will have the opportunity to gain exposure to Bitcoin.
ProShares CEO Michael Sapir said in a statement that BITO provides exposure to investors who buy stocks and ETFs but may not necessarily want to go through the hassles of buying Bitcoin from an exchange or setting up a wallet.
BITO could also be the precursor for other investment product offerings. For one, the largest digital currency asset manager, Grayscale Investments, already plans to convert its flagship GBTC into an ETF “as soon there’s a clear, formal indication from the SEC,” Grayscale communications director Jennifer Rosenthal confirmed. Grayscale CEO Michael Sonnenshein also said that an Ether-based ETF could likely follow suit after BITO’s successful listing.
Aside from these, another futures-based Bitcoin ETF is also set to debut this week. SEC filings show that it accepted the registration request for Valkyrie’s Bitcoin Strategy ETF shares to be listed on the Nasdaq. Melanion Capital, a France-based investment firm, is also set to launch its own Bitcoin-linked ETF on Friday after getting the nod from French financial regulator AMF. The fund called Melanion BTC Equities Universe UCITS ETF invests in a diversified basket of equities correlated to the daily price movements of Bitcoin, and it will be listed on Euronext Paris.