Bitcoin Tops $60K: Time to Invest in Related ETFs?
Bitcoin jumped above $60,000 on Oct 15 for the first time since April. The asset hit an all-time high of nearly $65,000 in April.
Bitcoin jumped above $60,000 on Oct 15 for the first time since April. The asset hit an all-time high of nearly $65,000 in April on the Coinbase IPO success. However, the winning cryptocurrency then started to lose its appeal.
However, the latest rally came in the wake of the news of the first bitcoin futures ETF in the United States. The bitcoin futures ETF from ProShares will begin trading next week, a rewritten filing from the company indicated late Friday, marking a key moment in the development of the crypto industry in the United States. It will trade under the ticker “BITO.”
Despite the humongous success witnessed lately, regulatory concerns have always been a hurdle for bitcoin. There have been repeated attempts in the past by ETF issuers to bring an exchange-traded-product on the cryptocurrency. But none received the SEC nod. The SEC was seemingly looking for more proof of safety in this trade (read: Bitcoin Matches SPY ETF in 1H: What Lies in 2H of 2021?).
“The Securities and Exchange Commission had not formally approved the creation of bitcoin futures ETF as of Friday afternoon and the agency may never make a formal declaration of approval for it. But the ProShares’ announcement indicates that the agency is unlikely to block the listing at this point,” as quoted on CNBC.
More Futures-Based ETF Launches Ahead?
SEC Chair Gary Gensler indicated his preference for futures tracking ETFs, created under the existing 1940 Investment Company Act, which provide considerable investor protection. Futures-based products are however not as efficient as physically-based products in general since derivatives add another layer of complexity, with the need to rollover. They also are not very good at tracking spot prices (read: Bitcoin & Blockchain ETFs: What Investors Should Know).
The likelihood the ETF’s listing appeared to push up the price of bitcoin over the past week. Several companies, including Invesco and Valkyrie, have applied to bring about similar ETFs that could follow ProShares into the market in the weeks ahead.
In the absence of an ETF before, investors used to track products like the Grayscale Bitcoin Trust (GBTC) that can trade at a significant discount or premium to their NAV. But these are only available to qualified wealthy investors or in over-the-counter markets.
Any More Downsides in the Cards?
Environmental concerns may be a downside risk for the fund. Per a CNBC article, questions regarding the bitcoin’s impact on the environment could be another issue for the cryptocurrency. “Bitcoin mining equipment requires lots of electricity to run, and bitcoin’s energy consumption has risen considerably over the years in tandem with its price. While bitcoin’s critics have long warned of its huge carbon footprint, Tesla CEO Elon Musk brought the issue back to the fore this year,” the article noted.
ETFs in Focus
If you are still unsure about investing in BITO and want to wait for more futures-based ETF launches, stocks that are related to bitcoin mining or trading may entice you as they play an indirect role in betting on this crypto asset. Coinbase Global Inc. COIN is a U.S. company that operates a cryptocurrency exchange platform without an official physical headquarter. COIN shares gained 7.9% on Oct 15 thanks to the bitcoin rally.
Coinbase has exposure to funds like VanEck Vectors Digital Transformation ETF DAPP, Simplify Volt Fintech Disruption ETF (VFIN) and Renaissance IPO ETF IPO. Blockchain ETFs like Amplify Transformational Data Sharing ETF (BLOK) should also be watched by investors interested in bitcoin.
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