Proshares’ Futures ETF Pushes Bitcoin to All Time High, But What Does This Really Mean for Investors?
Both financial and crypto media alike have been raving about the launch of Proshares’ futures ETF this past week, with its trading volumes topping $1 billion on the first day of listing and the price of Bitcoin topping $66,000. Shortly after, two bitcoin futures ETFs from asset managers VanEck and Valkyrie also received SEC approval.
The fastest ETF to reach $1 billion in AUM was a gold ETF back in 2004, which it did in three days. Fast forward seventeen years and Bitcoin $BITO successfully smashed this record in a mere two days.
🔹But what does all this really mean for investors?
We give our answers below.
🔹What is a futures ETF? How’s it better than the Grayscale trust?
The Bitcoin futures ETF is listed on a highly liquid exchange, NYSE Arca, and the funds are invested in underlying futures contracts listed on the Chicago Mercantile Exchange. This is in contrast to Bitcoin itself, which is an unregulated product, and the Grayscale Bitcoin trust, an OTC product that currently dominates institutional investments in Bitcoin-linked products.
The Grayscale trust has a six-month lock-up and its shares can only be redeemed after a set period, which is why it sometimes trades at a large discount or premium to the underlying assets. The Proshares futures ETF doesn’t have these restrictions, so is more likely to trade closer to the NAV of the underlying assets. Also, since the ETF is invested in a basket of futures, there’s no need to physically custody Bitcoin, which means the fees are lower at 0.95%, compared to Grayscale’s 2%, though there are some costs and issues with rolling over the underlying futures. These disadvantages are why Grayscale is applying to convert its trust product into a spot ETF.
🔹More players such as Van Eck and Valkyrie are launching futures ETFs. What does this mean for investors?
It’s likely that you’ll start to see more players starting to compete on price, like traditional passively managed ETFs. Right now the Proshares ETF is charging 0.95% fees, but competitors can easily launch similar products. Traditional ETFs right now charge much lower fees, with Vanguard charging an average of 0.08%. This means institutional investors could gain exposure to cryptocurrencies at ultra-low costs in the future.
🔹Why is the SEC more positive on Bitcoin futures ETFs? What does this mean for institutional investors?
The Proshares futures ETF is invested in Bitcoin futures listed on the Chicago Mercantile Exchange, which are regulated by the CFTC. This is why Gary Gensler is more positive on futures ETFs, because the underlying products are regulated, whereas Bitcoin itself and the exchanges it trades on are not regulated. This also means that institutional investors will face less opposition from their boards and LPs when investing in these futures ETFs. In short, we will see more and more institutional investor interest in cryptocurrencies and cryptocurrency-linked products, which will help drive the market going forward.
🔹Will Spot ETFs be approved soon?
Futures and spot markets are inherently linked with each other, and data from the Proshares futures ETF and other ETFs can provide indications that make it easier for the SEC to approve spot ETFs in the future. Grayscale is applying to convert its own trust product into a spot ETF.
🔹How much further can Bitcoin go?
We believe that the crypto bull market still has a long way to go. On-chain data shows that Bitcoin balances on multiple exchanges have declined substantially, reflecting an undersupply of Bitcoin and indicating the need for its price to adjust to a new level.
The recent market attention is well warranted; Bitcoin’s greatest value is that it is a scarce and highly liquid store of value, that is not controlled by individuals or organizations. In short, Bitcoin reflects the truest form of financial freedom in that it enables individuals to control and store his/her wealth, and this wealth cannot be devalued by governments’ monetary policies.
Bull markets peak when long term holders (LTH) sell coins they have held for some time, and the market becomes dominated by short-term speculators. Currently, long-term holders are still holding large positions and not yet selling in large numbers.
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