Suddenly, the Bitcoin futures ETF out of nowhere
This week there is one news item to rule them all, namely the highly anticipated first Bitcoin futures ETF set to start trading in the US. We walk you through why the surprise new ETF is important, while possibly also meaning hardly anything for the market.
A BITCOIN FUTURES ETF IS SET TO LIST IN THE US
For years the Bitcoin community has speculated on when a Bitcoin ETF would list in the US. The ETF has been highly anticipated for several reasons, mainly that it lets investors in the US get exposure to Bitcoin through their regular brokerage account based on a regulatory framework without the hassle of storing Bitcoin themselves. Comparing ETFs with ETPs, which are tradable in multiple regions across the world, ETFs are often able to offer a more competitive management fee than cryptocurrency ETPs, while reducing the risk for investors in the event the issuer defaults.
As the US serves as the single most influential cryptocurrency market presently, the ETF listing there has been highly anticipated, with multiple issuers seeking approval for an ETF over the years. Up until now, every proposal has been turned down by the SEC. But with multiple ETFs approved in Canada, and US-listed stock MicroStrategy to some extent acting as a kind of ETF due to their considerable treasury of 114,000 Bitcoins, the SEC has been put under greater pressure to let an ETF list.
On Thursday last week, believable rumors started circulating that the SEC would not block a proposed Bitcoin futures ETF from ProShares that would begin trading this week. On Friday after the stock market closed, the rumor was confirmed as the futures ETF was listed on SEC’s website to start trading tomorrow on the New York Stock Exchange, provided no last-minute complaint arises from the SEC. The futures ETF did not receive formal approval from the SEC but will simply start trading as the rules stipulate that it can if the SEC does has not raised any objections now that 75 days will have elapsed since the initial filing for the ETF’s listing. From rumors to confirmation, the timespan was particularly short, so it felt like it was coming out of the blue. On the rumors and the confirmation of the very same last week, Bitcoin surged from around 57,500 (BTCUSD) to currently 61,000 and closed on Friday near 62,500, or less than a thousand dollars from the record high daily close.
Despite the enthusiastic price action, the futures-based Bitcoin ETF will likely prove less important than cryptocurrency advocates hope. This is mainly due to the ETF holding Bitcoin futures that must be rolled forward with a negative roll yield with the expiry of every contract (the total yearly cost increases by as much as 5% – 10% on top of the management fee) rather than holding “physical” Bitcoin that the ETF stores. As well, Bitcoin futures may not have the same price as price as physically held Bitcoins, potentially exposing investors to price premium. The lower management fee for Bitcoin ETFs was previously acknowledged, but this does not benefit investors holding Bitcoin futures ETFs. This all effectively makes holding futures ETF rather expensive even if more convenient or less risky for some investors. For these reasons, the ETF will likely not attract many long-term investors presumably making the futures ETF less influential on Bitcoin than anticipated.
The futures ETF could arguably lead to increased confidence from the SEC in the crypto space to subsequently list a spot ETF, as many cryptocurrency advocates reckon. While this may be true, there are notable differences between a Bitcoin spot ETF and a futures ETF, especially the fact that the physical Bitcoins need to be held by a custodian, which increases the risk of loss via hacking attacks or exchange failures. Moreover, the Bitcoins need to be bought, sold, and stored in a highly unregulated environment, specifically on the native crypto-financial service providers, something the SEC is likely not comfortable with. For the SEC, these factors can act as a significant barrier to allowing a spot ETF be listed. For example, the SEC has pushed the deadlines of four Bitcoin spot ETF applications to November and December this year.
Elsewhere, on Friday the Guernsey financial regulator approved a European Bitcoin spot ETF by Jacobi Asset Management, a London-based multi-asset investment firm, with the Bitcoin itself to be stored by Fidelity Digital Assets, a subsidiary of Fidelity Investments.
The ETF will be open to investors outside the US on the CBOE Europe Equities exchange under the condition that it receives a listing approval from Financial Conduct Authority (FCA), a financial regulator in the UK. The approval of this spot ETF arguably puts additional pressure on the SEC to list a spot ETF in the US as well.
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Mads Eberhardt
Mads Eberhardt
Cryptocurrency Analyst
Saxo Bank
Topics:CryptocurrenciesBitcoin
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