First Bitcoin-Linked ETF Debuts on NYSE Paving the Way for Broader Adoption

Bangkok, Thailand - Dec 13, 2017: Physical Bitcoin pile on table.
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The first Bitcoin futures exchange-traded fund (ETF) started trading today on the New York Stock Exchange, in what several experts see as a major win for the crypto industry both from a regulatory standpoint as well as from an adoption one.

See: Is There a Way To Short Bitcoin? Michael Burry of ‘The Big Short’ Fame Ponders Before Quitting TwitterFind: Bitcoin Is $1 Trillion Asset Yet Again — Is Now the Time To Invest?

This comes eight years after the first Bitcoin ETF application was filed, and follows the Securities and Exchange Commission’s (SEC) stalling on such approvals. While a far cry from a “pure” Bitcoin-only ETF, the new ETF is giving traders and investors hope that this could pave the way for overall approval. Already, several similar ETFs are being reviewed by the SEC.

Most notably and indicating that things might move faster, today, Grayscale Investments announced it had filed with the SEC to convert its Bitcoin Trust into a Bitcoin Spot ETF “on the heels of the SEC’s clearance of a Bitcoin Futures ETF,” according to an announcement.

ProShares Bitcoin Strategy ETF (BITO) is the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid and transparent way, according to the fund’s prospectus. The fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.

Unlike Bitcoin ETF applications that the SEC has rejected, the ProShares fund is based on futures contracts and was filed under mutual fund rules that SEC chairman Gary Gensler has said provide “significant investor protections.”

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Just 20 minutes into its trading premiere, about 6.4 million shares of BITO worth roughly $264 million changed hands, according to data compiled by Bloomberg. Meanwhile, Bitcoin gained as much as 3.1% to trade around $63,274, slightly below its April record highs of just under $65,000, according to Bloomberg.

Bitcoin Foundation Chairman Brock Pierce tells GOBankingRates that the ETF approval is a watershed moment for the industry.

“This moment is long-awaited, as numerous entrepreneurs and firms have sought approval from regulators since as early as 2013,” he says.

“Today begins an era where retail investors can invest directly into Bitcoin through the ETF, and serves as further validation of Bitcoin and cryptocurrencies across the country and on a global basis.”

The ETF is based on bitcoin futures that trade on the Chicago Mercantile Exchange and seeks to provide capital appreciation primarily through actively managed exposure to bitcoin futures contracts, according to the SEC filing. It does not invest directly in Bitcoin. Future contracts are agreements to buy or sell an asset in the future at a specific price.

“The price of bitcoin futures should be expected to differ from the current cash price of bitcoin, which is sometimes referred to as the “spot” price of bitcoin. Consequently, the performance of the Fund should be expected to perform differently from the spot price of Bitcoin,” according to the fund’s prospectus, adding that “these differences could be significant.”

Adam Hack, Coin Nerds founder, tells GOBankingRates that he believes that “it’s great for mainstream adoption and I hope it leads to a spot based bitcoin ETF in the near future.”

“The real test will be the conversion of the famed Grayscale bitcoin trust to a spot-based Bitcoin ETF,” he adds.

Indeed, Grayscale said today that “as we file to convert GBTC into an ETF, the natural next step in the product’s evolution, we recognize this as an important moment for our investors, our industry partners, and all those who realize the potential of digital currencies to transform our future,” Michael Sonnenshein, CEO of Grayscale Investments, said in the announcement.

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This is just the beginning: in total, there are nine bitcoin futures-based ETFs being reviewed by the SEC, all with potential launch dates during the fourth quarter of 2021 including from large asset managers like ARK, Invesco, and VanEck and lesser-known ETF firms like Bitwise and Valkerie, Todd Rosenbluth, head of ETF and mutual funds at CFRA wrote in a statement to GOBankingRatess.

“While the first ETF of any investment style is likely to gain a liquidity advantage, we expect there to be fee competition as more products begin trading,” he wrote.

See: 6 Best Crypto ETFs To Look For in 2021Find: SEC Stalls Again on Four Bitcoin ETFs, Pushes Rulings Back Another 60-Days

Coinshares notes in its weekly report that Bitcoin saw the largest inflows last week, totaling $70 million, marking the fifth consecutive week of inflows.

The recent decision by the SEC to allow a futures-based ETF in the United States could prompt further significant inflows in the coming weeks as U.S. investors begin to add positions,” it reads.

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