Is a Bitcoin-linked ETF trading on the NYSE riskier than holding a Bitcoin?
The moment that the Bitcoin advocates have been wishing for since 2013 is finally here. The Bitcoin-linked Exchange-Traded Fund (Ticker: BITO) is slated to start trading on the New York Stock Exchange today.
It is a significant milestone in the crypto-verse and Bitcoin has been on a roll since the weekend following the news. The currency marked its position upwards of $60,000 and is aiming for a new All-Time High, riding on the optimism among the crypto enthusiasts. At the time of this writing, Bitcoin stood tall at $62,248.61, a 2.05% increase in the past 24 hours, according to CoinMarketCap.
The long-awaited ProShares ETF will offer investors exposure to Bitcoin futures contracts — agreements to buy or sell the asset later for an agreed-upon price.
ProShares announced on their website that the first bitcoin-linked ETF in the United States (NYSE Ticker: BITO) will go live on October 19, 2021. “BITO will offer access to bitcoin with the convenience, liquidity, and tradability of an ETF,” it said.
Prior to the Bitcoin-linked ETF, investors would invest in the cryptocurrency through digital currency exchanges. The risk of hacking, losing private keys to your wallet, security, fear of the unknown, were some of the concerns that traditional investors had regarding investing in Bitcoin.
The second option, Bitocin Trusts, allows investors to add Bitcoin to their portfolio but comes at the price of higher fees and often doesn’t reflect the current value of the digital currency.
So, what changes with BITO? It will offer investors a chance to gain exposure to Bitcoin returns through a brokerage account. The new ETF can be bought and sold like stocks without the hassle of holding an account at a cryptocurrency exchange or a crypto wallet. Although the ETF mentions Bitcoin, it doesn’t invest directly in Bitcoin but gives investors the benefit of exposure.
Gary Gensler, Chairman of the US Securities and Exchange Commission had signalled that the SEC might allow crypto ETFs based on futures that trade on a highly regulated exchange.
The agency was open to an ETF tied to Chicago Mercantile Exchange (CME) Group’s bitcoin futures, which allow traders to hedge or bet on bitcoin prices at a later date. He further said that since ETFs were filed under the Investment Company Act of 1940, it provides “significant” protection for investors.
The SEC Approval for the ProShares ETF wasn’t announced by the agency but the firm’s final prospectus met with no opposition and BITO is ready for its NYSE launch today.
Following the listing of BITO on NYSE, a sizeable amount of money could pour into Bitcoin through this ETF, leading to an upward price movement. Supporters anticipate that it could be an important step in the mass adoption of crypto in the coming weeks.
The buying frenzy could lead Bitcoin to soar to higher levels, riding on the positive investor sentiments. We can expect the bullish trend to continue with new All-Time Highs towards the end of October or November. Institutional investors entering the bull run could provide a further catalyst to the market. But will the big run be followed by a crash and the general investor sentiment to ‘Sell the top and buy the dips?’
If the old-school investors only invest in stocks, the Bitcoin-linked ETF could be their chance to dip their toe into crypto investing. But it is devoid of advantages like true ownership of cryptocurrencies that purists vie for.
Sceptics, however, foresee that a futures ETF is risky as you aren’t investing directly in Bitcoin. If investors don’t time their investments right, they risk losing more money on a futures contract than they will from holding Bitcoin, during a crash.
While the crypto industry hopes for pure Bitcoin funds that invest directly in the currency, the ProShares Bitcoin-linked ETF is a move in the right direction. ProShares’ ETF going live could serve as a precedent for several other Bitcoin ETFs that are lined up to hit the US market in the coming weeks.
Would you invest in Bitcoin directly or through Bitcoin-linked ETF? Share your thoughts in comments below.