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PlusMarkets Analysis • 20/10/2021
The first Bitcoin-linked ETF made its debut this week after finally getting the green light from the US Securities and Exchange Commission (SEC). The Bitcoin-linked ETF is another way for people to invest in the cryptocurrency market. The ProShares ETF referred to as “Bitcoin-linked,” will mainly invest in Bitcoin futures contracts and not directly in Bitcoin.
A futures contract is a standardized legal agreement to buy or sell an asset at a pre-agreed price. A futures-based ETF tracks cash-settled futures contracts, not the price of the asset itself. According to Matt Hougan, chief investment officer at Bitwise Asset Management, “the all-in cost of a futures-based ETF could be in the 5% to 10% range once you take into account the annualized roll yield”.
The much-anticipated ETF will be trading on the New York Stock Exchange under the symbol BITO(BTCUSD).
The Bitcoin-linked ETF will invest primarily in Bitcoin futures contracts and not directly in Bitcoin. Several other companies expect to launch their own ETFs in the next few weeks once SEC approves them. Some of these companies include Valkyrie, Invesco, and VanEck.
The first Bitcoin-linked ETF that made its debut this week will cater “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,” according to a Proshares source.
BITO ended the first day of its trading session with $984 million in volume, which is a significant increase when compared to other ETF debuts in the past. In 1993, the SPDR S&P 500 ETF traded around $40 million on its first day.
Bitcoin has been on the rise yet again since the Bitcoin-linked ETF was approved. On Tuesday, Bitcoin went up by 4%, reaching $64,206.51. Many investors anticipate the cryptocurrency to reach above its all-time high of $64,800 this week with the first Bitcoin-linked ETF launching.
Bitcoin has doubled in 2021, and some investors interpret this as being a refuge from other economic forces that can counter bonds, stocks, and other assets.
Cryptocurrencies are reportedly becoming more accepted by the world. The Bitcoin-linked ETF will possibly be “the biggest endorsement from the SEC for crypto”. It will create a “floodgate of new capital and new people into the space”.
Moreover, companies are hopeful that if futures-focused Bitcoin ETFs go well, this could make the SEC more open to an ETF that invests directly in Bitcoin in the future. In the past, SEC had challenged the crypto industry to prove that there is a large regulated market trading alongside the spot bitcoin market.
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