Bitcoin ETF’s “Near Perfect” Debut Brings Spot Price Close to Record; Grayscale join the fray – .

Bitcoin ETF’s “Near Perfect” Debut Brings Spot Price Close to Record; Grayscale join the fray – .

Bitcoin sits above $ 64,000 on Tuesday, reaching an all-time high as excitement over its first exchange-traded fund (ETF) – and one to come – peaked.
As the largest cryptocurrency by market cap rose more than 4% that day, The Proshares Bitcoin Strategy ETF (BITO) was launched on the New York Stock Exchange (NYSE) – the very first fund linked to the BTC (BTC) available for US investors. While some market participants have questioned the usefulness of the new product, it will offer people a new way to gain exposure to BTC through brokerage accounts.

BITO’s debut was the second-largest for an ETF, reflecting massive interest in the crypto industry. However, incoming buyers – especially new crypto owners – should be warned: the new Bitcoin ETF (s) will not trade exactly like the digital coin in the market which tends to fluctuate wildly.

The Securities and Exchange Commission (SEC) has approved the new ETF as being based on futures, meaning they are derivative, based on the underlying BTC price. This makes them more complex and more expensive to own than directly owning Bitcoin.

But Grayscale Investments and the New York Stock Exchange are set to convert the world’s largest Bitcoin fund into a spot ETF, capitalizing on market adoption of the new fund and a regulatory environment that appears to be shifting in favor of cryptocurrency.

“BITO’s daily correlation to spot Bitcoin is going to be near perfect,” Eric Balchunas, senior ETF analyst at Bloomberg, told Yahoo Finance Live, although BITO will likely miss the price of Bitcoin by 5-10% within a few minutes. years, he added.

“Advisors probably won’t buy it,” Balchunas said. “It’s going to get exciting, but that excitement will be driven by traders, not long-term investors. “

Investors are calling for a cash-based fund that would better serve retail investors. However, the SEC chose to approve the BITO first because, as products based on futures, they are governed by a 1940s law that provides investors with a higher degree of protection.

Other competitors of the Bitcoin ETF – including Grayscale, which offers (GBTC) – remain bullish that the futures ETF will pave the way for a spot product. But in the short term, Balchunas remains bearish as SEC Chairman Gary Gensler seems less interested in the Bitcoin spot ETF as it falls under a 1933 securities provision that grants less protection. to investors.

“Gary Gensler just isn’t comfortable with the 1933 Act,” Balchunas said. Referring to the possible timeline for offering a Bitcoin spot ETF, he added, “If you forced me to pick a date for this, I would probably go with one year to eighteen months. “

What investors need to know

If you have never traded in futures or owned a futures based ETF, the main difference is that the returns on BTC futures do not reflect the price returns of the longer underlying Bitcoin market. term.

Two key terms that the first-time investor may need to know are “contango” and “offset. futures price).

Overall, this means that investors will sometimes gain or lose value in the longer term by owning the BTC ETF futures, although the price of Bitcoin will not fluctuate in the same way.

But contango and offset also open up another opportunity for a trade called “cash and carry”. The goal is to take advantage of this price difference between BTC futures contracts and the underlying price of Bitcoin, also known as the futures premium.

Traders could use the cash and carry strategy for years. But now, with the exit of the futures ETF, the premium is expected to become much higher. Once that’s done, it will serve as another way for US funds and pro-traders to make profits on BTC futures.

Still, crypto investors believe that most retail investors who aren’t active futures traders are unlikely to be interested in cash and carry. However, they will need to understand that an increasing premium in BTC futures means that in the longer term it will likely fluctuate with the added factor of professional commodity traders making more sophisticated plays on the product.

Open interest in CME Futures at record level

Shiliang Tang, chief investment officer of crypto hedge fund LedgerPrime, is nonetheless optimistic about how the futures ETF could boost the price of Bitcoin in the short term, as Wall Street investors cram into this new type of fund.

The Chicago Mercantile Exchange (CME), where the new fund is listed, “generally reflects institutional capital,” Tang told Yahoo Finance. He explained that the open interest in CME Bitcoin futures is a solid way to gauge the level of participation pro-traders and institutional investors are showing in BTC Futures – at least in part to capitalize on cash and carry trade.

Surpassing its previous record of $ 3 billion, open interest in BTC Futures on the CME currently stands at $ 3.6 billion according to the crypto exchange Bybit.

Aggregated open interest in Bitcoin futures on all major exchanges now sits above $ 23 billion and is climbing, not far from this year’s record ($ 27.3 billion) set just before the Coinbase’s initial public offering (COIN) in April.

David Hollerith is a senior journalist covering cryptocurrency and the stock markets. you can follow him @DsHollers.


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