Monday, January 30, 2023

October to See 3 Bitcoin Futures ETFs? Let’s Explore (Revised)


October 2021 will be long-remembered in the investing world for the launch of bitcoin futures ETFs. ProShares Strategy ETF BITO, the first US listed bitcoin ETF has started trading on Oct 19, making the world’s biggest cryptocurrency available in a tax-efficient wrapper to investors via any brokerage account.

VanEck will join ProShares in launching a bitcoin futures exchange-traded fund (XBTF). Plus, Valkyrie Investments’s bitcoin futures exchange-traded fund also won the green signal of the U.S. Securities and Exchange Commission. The fund (BTF) started trading from Oct 22.

These are great success from the issuers’ point of view. Despite the humongous success witnessed lately, regulatory concerns have always been a hurdle for bitcoin. There have been repeated attempts in the past by ETF issuers to bring an exchange-traded-product on the cryptocurrency. But none received the SEC nod up until October 2021. The SEC was seemingly looking for more proof of safety in this trade (read: Bitcoin Matches SPY ETF in 1H: What Lies in 2H of 2021?).

More Futures-Based ETF Launches Ahead?

SEC Chair Gary Gensler indicated his preference for futures tracking ETFs, created under the existing 1940 Investment Company Act, which provide considerable investor protection. Futures-based products are however not as efficient as physically-based products in general since derivatives add another layer of complexity, with the need to rollover. They also are not very good at tracking spot prices (read: Bitcoin & Blockchain ETFs: What Investors Should Know).

The likelihood the ETF’s listing appeared to push up the price of bitcoin over the past week. Bitcoin hit a record level of $66K on ETF news. Several companies, including Invesco have applied to bring about similar ETFs that could follow ProShares into the market in the weeks ahead.

In the absence of an ETF before, investors used to track products like the Grayscale Bitcoin Trust (GBTC) that can trade at a significant discount or premium to their NAV. But these are only available to qualified wealthy investors or in over-the-counter markets.

Any More Downsides in the Cards?

Environmental concerns may be a downside risk for the fund. Per a CNBC article, questions regarding the bitcoin’s impact on the environment could be another issue for the cryptocurrency. “Bitcoin mining equipment requires lots of electricity to run, and bitcoin’s energy consumption has risen considerably over the years in tandem with its price. While bitcoin’s critics have long warned of its huge carbon footprint, Tesla (NASDAQ:) CEO Elon Musk brought the issue back to the fore this year,” the article noted.

ETFs in Focus

If you are still unsure about investing in BITO, XBTF and BTF and want to wait for more futures-based ETF launches, stocks that are related to bitcoin mining or trading may entice you as they play an indirect role in betting on this crypto asset.

Coinbase (NASDAQ:) Global Inc. COIN is a U.S. company that operates a cryptocurrency exchange platform without an official physical headquarter. Coinbase has exposure to funds like VanEck Vectors Digital Transformation ETF DAPP, Simplify Volt Fintech Disruption ETF (VFIN) and Renaissance IPO ETF (IPO). Blockchain ETFs like Amplify Transformational Data Sharing ETF BLOK should also be watched by investors interested in bitcoin.

Then there is crypto innovators ETF namely Bitwise Crypto Industry Innovators ETF BITQ. The underlying Bitwise Crypto Innovators 30 Index measures the performance of companies involved in servicing the cryptocurrency markets, including crypto mining firms, crypto mining equipment suppliers, crypto financial services companies, or other financial institutions servicing primarily crypto-related clientele.

(We are reissuing this article to correct a mistake. The original article, issued on Oct 27, 2021, which incorrectly mentioned the ticker code of Valkyrie ETF, should no longer be relied upon.)

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Amplify Transformational Data Sharing ETF (BLOK): ETF Research Reports

Coinbase Global, Inc. (COIN): Free Stock Analysis Report

VanEck Digital Transformation ETF (DAPP): ETF Research Reports

Bitwise Crypto Industry Innovators ETF (BITQ): ETF Research Reports

ProShares Bitcoin Strategy ETF (BITO): ETF Research Reports

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