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Bitcoin Futures ETF Exceeds Expectations, Trades $1 Billion On Day One

The numbers are in, and the Bitcoin Futures ETF had the biggest debut of the year. By far. We have to “exclude ETFs where their Day One volume was literally one pre-planned giant investor or BYOA,” but that’s fair. Apparently, the ProShares Bitcoin Strategy ETF got to the top naturally, via real trades by real people and institutions. Considering that just its approval by the SEC seemed to catapult Bitcoin’s price to the edge of an All-Time High, a question arises. How will the market react tomorrow? And the day after that?

Related Reading | Bitcoin ETF Check, What’s Next For BTC

But let’s avoid speculation and check Senior ETF Analyst for Bloomberg, Eric Balchunas’ charts:

If we don't exclude ETFs where their Day One volume was literally one pre-planned giant investor or BYOA (not natural), it still ranks #2 overall. Here's that list. The reason some of these shouldn't be included IMO is they don't really represent grassroots interest. pic.twitter.com/wmZiHnpFrS

— Eric Balchunas (@EricBalchunas) October 19, 2021

Considering the first-ever Bitcoin Futures ETF “also traded more than 99.5% of all ETFs,” it’s fair to say the launch was a huge success. What does it mean for the following ETFs? According to Balchunas, it’ll be hard for them to succeed. “Every day counts because once an ETF gets knows as ‘the one’ and has tons of liquidity, it’s virtually imposs to steal.” And, what does this mean for the market in general? NewsBTC already covered this question:

“Although these ETFs have attracted criticism for being backed by futures contracts and not the underlying asset, they could still have big implications for Bitcoin — allowing tax-sheltered and retirement accounts to easily get exposure, and potentially opening the cryptoasset to a much broader audience.”

The NYSE welcomes @ProSharesETF in celebration of the first U.S. Bitcoin-Linked ETF $BITO https://t.co/0qh0NDS2d4

— NYSE 🏛 (@NYSE) October 19, 2021

Why Is There A Bitcoin Futures ETF Instead Of A Bitcoin ETF?

Who better to answer this question than the SEC’s chairman himself, Gary Gensler told CNBC: 

“What you have here is a product that’s been overseen for four years by the U.S. federal regulator CFTC, and that’s being wrapped inside of something within our jurisdiction called the Investment Company Act of 1940, so we have some ability to bring it inside of investor protection.” 

So, the Bitcoin Futures ETF falls under the Commodity Futures Trading Commission jurisdiction. Plus, it tracks the Chicago Mercantile Exchange (CME) Bitcoin futures. And the SEC considers that the institutional support will protect the customer. According to them, the underlying asset, Bitcoin, is too volatile and subject to manipulation.

The first persons to propose a Bitcoin ETF in the USA, the Winklevoss twins, lament that when they did the price of Bitcoin was $68 and nowadays is $64K. “That’s almost a 1000x return in the meantime. I’m glad we got here, but it has taken too long.”

When @cameron and I first proposed a bitcoin ETF in July 2013, the price of bitcoin was $68.

Today, upon the launch of two bitcoin futures ETFs, the price of bitcoin is $64,000.

That's almost a 1000x return in the meantime. I'm glad we got here, but it has taken too long.

— Tyler Winklevoss (@tyler) October 19, 2021

Also a skeptic of the Bitcoin Futures ETF‘s long term potential, Anthony Bertolino, VP of growth at iTrustCapital, told CNBC:

“The launch of the first bitcoin-linked ETF in the U.S. will bolster the broader crypto market and help an entirely new investor class experience the benefits of bitcoin as a legitimate asset. However, a derivatives-based bitcoin ETF is not where we want to be long-term.”

BTC price chart for 10/20/2021 on Forexcom | Source: BTC/USD on TradingView.com
What Are The ProShares Bitcoin Strategy ETF’s Characteristics?

The next few days will be crucial for this story. There’s a possibility that today’s demand was orchestrated, at least in part. If this happened, it’ll be very obvious in the following days. In any case, the fund’s official site defines the first Bitcoin Futures ETF as:

“ProShares Bitcoin Strategy ETF (BITO) is the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid and transparent way. The Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.”

Related Reading | Grayscale Investments Set to File for Bitcoin Spot ETF as Competition Heats Up

And alerts the clients that “The fund does not invest directly in bitcoin,” and that “The price and performance of bitcoin futures should be expected to differ from the current “spot” price of bitcoin.” Forewarned is forearmed.

Featured Image: Screenshot of the ETF’s opening bell ceremony| Charts by TradingView

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Will The SEC Approve A Bitcoin Futures ETF In 2021? Here Are The Implications

Rumors are flying. The SEC could approve a Bitcoin Futures ETF before the year ends. It seems like the US Security And Exchange Commission will not give the go-ahead to the mythical Bitcoin ETF just yet… or ever, but a new option has a few companies salivating. What does this mean? And why a Bitcoin Futures ETF before one for the asset itself? That’s what we’re here to explore.

Related Reading | Skybridge Capital Applies For Cryptocurrency ETF And Accumulates $100 Million For ALGO Fund

But first, why is the SEC hesitant about approving the Bitcoin ETF? Investopedia responds:

“The reason is that bitcoin, the largest cryptocurrency in the world by market capitalization, remains largely unregulated. Additionally, the Securities and Exchange Commission (SEC) is hesitant to allow an ETF focused on the new and largely untested cryptocurrency market to make its way to the public.”

If that’s true, what makes us think that a Bitcoin Futures ETF is not only possible, but imminent? Well, last month The SEC Chairman Gary Gensler told the Aspen Security Forum:

“I anticipate that there will be filings with regard to exchange-traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with the other federal securities laws, the ’40 Act provides significant investor protections.

Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures.”

🤯 pic.twitter.com/XUlSV31jEw

— Eduardo Prospero (@edprospero23) September 23, 2021

Is A Bitcoin Futures ETF What US Investors Want?

Since Gary Gensler sent such a clear signal, the financial world responded in unison. 

“At least four asset managers have filed for ETFs that invest in bitcoin futures after Securities and Exchange Commission chair Gary Gensler earlier this month indicated that he could approve such funds. But investors may not want them in lieu of physically backed bitcoin ETFs, analysts have said.”

According to Investopedia, “A bitcoin ETF mimics the price of the digital currency, allowing investors to buy into the ETF without trading bitcoin itself.” However, who’s interested in ETFs when bitcoin, the asset, is widely available? Some investors or groups simply can’t invest in bitcoin because their own internal rules won’t allow them to. They can’t purchase bitcoin through a brokerage account. No financial institution backs it, so no one protects them. And, of course, there’s the feared volatility.

Bloomberg explains how Bitcoin fixes this:

“A Bitcoin ETF could help get around those restrictions since the format is more widely accepted. “There are all sorts of custody and regulatory hurdles for big financial institutions to jump through,” said Ross Mayfield, investment strategy analyst at Robert W. Baird & Co. “If it were offered in an ETF, it clears a lot of that up for financial institutions.”

However, it appears that the SEC won’t approve one any time soon. Why would they approve a Bitcoin Futures ETF instead? Bloomberg continues:

“For the SEC’s purposes, Bitcoin futures also offer an additional level of security because they are governed by the Chicago Mercantile Exchange and require investors to put down cash on margin to trade, as a form of collateral.”

BTC price chart 09/27/2021 on Coinbase | Source: BTC/USD on TradingView.com
Experts And Important Players Disagree

While some companies can’t wait for the Bitcoin Futures ETF to be available, others are less enthusiastic. One of those is Michael Sonnenshein, CEO of Grayscale Investments. His company is one of the many that applied for a Bitcoin ETF and are still waiting for approval. In a recent CNBC interview, he said:

“It would be shortsighted of the SEC to allow a futures-based product into the market before a spot product,” Sonnenshein told CNBC’s “Squawk Box” on Tuesday. “They really should be allowing both products into the market at the same time and let investors choose which way they want.” 

Related Reading | Did The SEC’s Gary Gensler Threaten Crypto And DeFi In The WaPo Interview?

Of course, he’s heavily invested in this outcome. His company’s Grayscale Bitcoin Trust is incredibly successful, but if they manage to turn it into an ETF, it might go parabolic. However, he’s not the only one that thinks that way. In the Bloomberg article, another expert elaborated on the Bitcoin Futures ETF ‘s limitations:

“With futures-based products, you introduced additional cost, more complexity, you have futures contracts that have to be rolled,” said the ETF store’s Geraci. “It’s just a sub-optimal option for investors.”

In any case, the Bitcoin Futures ETF approval is just speculation. Gary Gensler said he looked forward to reading his staff’s review of the fillings, which is not a guarantee by any stretch of the imagination.

Featured Image by Markus Winkler from Pixabay – Charts by TradingView