What first bitcoin futures ETF means for cryptocurrency industry

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

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This week marked a milestone in the cryptocurrency space as investors began trading the first US bitcoin futures exchange-traded fund, outpacing other ETFs, and another followed on Friday.

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

The new products allow trading through regular investment accounts, bypassing security concerns related to cryptocurrency exchange.

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While the new offerings don’t ultimately meet what the industry wants – ETFs are investing in the currency itself – it didn’t dampen the excitement at the first launch.

The ProShares Bitcoin Strategy ETF (Trading Code: BITO) saw one of the biggest first days ever for ETFs, taking in $550 million from crypto-hungry investors. Overall, more than $1.01 billion worth of shares have been traded, according to Morningstar.

Moreover, the bitcoin price rose more than 4% on Tuesday to $64,206.51, according to Coin Metrics, and rose to an all-time high of $66,900 on Wednesday, topping the previous intraday record of $64,899 from mid-afternoon. April.

‘The original intent [of bitcoin]“It certainly remains the intent of many to try to turn conventional finance on its head,” said Ben Johnson, director of global ETF research at Morningstar.

“Instead, traditional finance has grabbed the bitcoins in its tractor bundle, rolled it up and turned it into something that would make Wall Street millions if not billions by creating this whole new ecosystem,” he said.

Bitcoin ETF Approvals Delayed

Companies have been vying to issue the first US Bitcoin ETF for nearly a decade. But the Securities and Exchange Commission has been slow to embrace the assets, citing concerns about a lack of regulation and the potential for fraud and manipulation in the bitcoin market.

“General conservatism has been a pattern among US regulators,” Johnson said, pointing to a landscape littered with bitcoin ETFs being updated, abandoned applications and others gathering dust.

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

However, there was a turning point in August when SEC President Gary Gensler indicated that the agency might be more open to futures-backed Bitcoin ETFs under the Investment Corporation Act of 1940, which governs mutual funds and may provide “significant investor protection.”

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

Ben Johnson

Global ETF Research Director for Morningstar

The change led to a flood of filings before approvals this week.

With the CFTC overseeing US bitcoin futures and the ETF shell falling under the SEC’s jurisdiction, regulators may offer some investor protections, Gensler said on CNBC’s “Squawk on the Street” this week. But he cautioned that it remains a “highly speculative asset class”.

While the Securities and Exchange Commission is expected to approve a handful of other bitcoin futures ETFs, it is unclear if and when the agency might give the green light to an ETF investment in the same currency.

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

What you need to know before investing

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

“This is like Christmas in October for high-frequency traders,” Johnson said, explaining how massive price swings could appeal to some investors.

Although the funds may have a significant correlation with bitcoin, the asset will not reflect the value of the currency as it tracks futures prices, which can be unpredictable.

“I think you have to be incredibly careful, and you have to prepare for massive fluctuations,” said Michael Pisaro, president of StraightLine Group in Troy, Michigan, which ranked 92nd on CNBC’s 2021 list.

He added that there may be a place for it, but it can be “extremely dangerous” if it becomes too much of someone’s bag.

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

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

But with more cryptocurrency-based products emerging on the market, investors may soon be faced with a dizzying array of portfolio options.

“Bitcoin is just the tip of the iceberg,” McKeown said. “We will see ETFs with exposure to many different crypto assets in the coming years.”

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