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In this week’s episode of BeInCrypto’s Video New Show, host Jessica Walker takes a look at the first Bitcoin-based exchange-traded fund approved by the Securities and Exchange Commission (SEC).
This triggered Bitcoin breaking the $60,000 price barrier over the weekend for the first time since April. Many are expecting new record highs in the coming days, which even occurred while we were recording this. There is also a possibility that this could be the start of another bull run that could lift the price even more. Let’s dive deeper into why this first ETF on the New York Stock Exchange is so important and what it means.
ETF rejections
The first time Bitcoin ETFs were mentioned was back in 2013, by the Winklevoss twins. The founders of the Gemini cryptocurrency exchange looked to start a Bitcoin ETF but were unsuccessful. More recently, on Dec. 30, 2020, VanEck filed for a Bitcoin ETF that would invest directly in Bitcoin. However, in mid-September, the SEC delayed its decision on the VanEck Bitcoin Trust for an additional 60 days. It’s now expected to approve or reject the proposal by Nov. 14.
ProShares’ ETF
However, yesterday, ProShares, an exchange trading company, listed an ETF that tracks Bitcoin futures on the New York Stock Exchange. It’s listed as “BITO,” the company said.
The ProShares CEO Michael Sapir said in a statement that “BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider”.
Shares of BITO were up about 3% at the time of recording and dominated the headlines across financial media.
Volatility
The crypto industry has been longing for a Bitcoin-related ETF for many years, especially with the increased demand from larger investors. It’s been a tumultuous year for the cryptocurrency. Bitcoin’s price began to explode last September, shooting from just under $12,000 at the beginning of the month to over $60,000 by April. A wave of bad news, including Elon Musk reneging on his blanket support of Bitcoin and a crackdown on cryptocurrency services in China, caused the price to drop significantly in May. In July, Bitcoin briefly fell below $30,000.
But instead of causing investors to pause, this volatility has actually increased the appetite for exposure to Bitcoin. This is where futures and funds come in.
Futures
Futures are contracts that commit investors to buy or sell a commodity at a certain price on a certain date. For instance, you could commit to buying 1 Bitcoin for $100,000 in 5 years. If the price of a Bitcoin on that date is $200,000, you’d have made money. If the price of a Bitcoin on that date is $50,000, you’d have lost money.
A futures ETF is notably different from a standard exchange-traded fund, which Bitcoin enthusiasts have been lobbying for. A typical ETF would give investors exposure to the underlying asset, in this case Bitcoin, whereas a Futures ETF allows investors to speculate on the price of the asset. Policymakers have said in the past that cryptocurrencies are too prone to fraud and manipulation to be approved for ETFs backed by actual Bitcoins.
Regardless, cryptocurrencies being integrated into the SEC’s framework is evidently enough to boost Bitcoin and many other currencies.
Crypto ETFs
Crypto ETFs have launched this year in Canada and Europe amid surging interest in digital assets. VanEck and Valkyrie are among fund managers pursuing U.S.-listed ETF products, although Invesco on Monday dropped its plans for a futures-based ETF.
The Nasdaq on Friday approved the listing of the Valkyrie Bitcoin Strategy ETF and Grayscale, the world’s largest digital currency manager, is planning to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF, as reported by CNBC.
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