The ProShares Bitcoin Strategy ETF debuted under the ticker "BITO" and rose about 3% to $40.88 in early trading. The fund tracks CME Group bitcoin futures, i.e. contracts that speculate on the future price of bitcoin rather than the cryptocurrency itself.
This means that investors in the ETF should be aware that both the price and performance of their securities will differ from the price of bitcoin itself. This is not ideal for those with a long-term view of cryptocurrencies and is hoping for an exchange-traded fund that tracks physical bitcoin that investors can buy and hold.
The first premiere
Michael Sapir, CEO of ProShares, noted that the ETF's launch is a milestone. "1993 is remembered for the first equity ETF, 2002 for the first bond ETF, and 2004 for the first gold ETF. 2021 will be remembered for the first ETF linked to cryptocurrencies," he assured. The price of bitcoin briefly spiked Tuesday morning after the start of trading, rising 3% to $63,035.04, according to Coin Metrics, nearing its April 14 all-time high of $64,899. Bitcoin futures were up about 2%.
Avalanche of ETFs
The cryptocurrency sector has been yearning for a bitcoin-related ETF for years. In about 2017, asset managers began calling for the launch of spot bitcoin ETFs, but their proposals were rejected by the US Securities and Exchange Commission (SEC), which argued that none were able to demonstrate the market's resilience to manipulation.
Bitcoin plunge
Bitcoin has plummeted 87% to a low of $8,200 on Binance's US platform, shortly after hitting new all-time highs above $66,000 following the Wall Street debut of ProShares' (NYSE:BITO) first ETF on the cryptocurrency. It has since recovered, and currently, bitcoin is down 2%.
In an internal email, the company notes that "one of our institutional traders indicated that they had a bug in their trading algorithm, which appears to have caused the sell-off." Within minutes, the platform noted, the trader "fixed the error" and the problem "appears to have been resolved."
Bitcoin as a hedge
After the fund's first day of trading, Bitcoin broke all-time highs from last April, now targeting the $67,000 level, according to some traders. However, according to experts at JPMorgan (NYSE:JPM), the digital currency's rise is not due to the ETF, but to Bitcoin's new role as an "inflation hedge."
For the investment bank, the "transition from gold ETFs to Bitcoin funds" has accelerated since September, supporting "a bullish outlook for BTC through the end of the year." Gold has reportedly failed to respond to rising cost pressures in recent weeks, prompting investors to look for alternatives in "non-fiat" currencies.
New New York debut
In addition to ProShares, a new ETF is set to debut on the regulated market. The Valkyrie Futures-based Bitcoin exchange-traded fund (NASDAQ: BTF) is set to land on the NASDAQ today, Friday, Oct. 22, under the ticker BTF, the company confirmed yesterday.
The launch comes just four days after the debut of the first ETF and after the U.S. Securities and Exchange Commission gave the green light to Valkyrie's Bitcoin Strategy ETF on Oct. 20.
According to Valkyrie Funds CEO Leah Wald, the new ETF "further confirms that U.S. regulators want to work with the industry to regulate crypto assets rather than ban them."
"The more products that come to market, the greater the awareness and, hopefully, adoption. There are other applications for similar products, which should also come to market," adds Wald.
Conclusion
Not all funds can invest in Grayscale's GBTC Trust. The trust, in this case, is the Bitcoin investment vehicle used by Grayscale and involves issuer credit risk.
Public pension funds, retirement plans, fixed income, and most equity and multi-market mutual funds cannot invest in certain asset classes. These limits arise from fund class regulation, the fund's bylaws, and the manager's risk assessment.
Global asset managers typically have between 30% and 60% exposure to fixed income, so it is highly unlikely that they will have exposure to cryptocurrencies, but with the introduction of the ETF, it will likely become part of that percentage.
