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What You Should Know About Bitcoin ETFs

·4 min read

After long years of wait, the cryptocurrency industry finally got ETFs to attract money from investors who want exposure to bitcoin price via the stock market. This is especially true as the launch of bitcoin ETFs will spur billions of dollars managed by pension funds, retirement and tax-saving accounts and other large investors into the sector, resulting in ample liquidity.

Investors can now easily buy bitcoin on crypto exchanges like Coinbase COIN, and on platforms such as PayPal PYPL and Square SQ. With the introduction of ETFs, this is the first time that investors will get exposure to the crypto market in their brokerage accounts, leading to increased investment in the booming cryptocurrency with a growing number of retail investors. It provides investors a way to buy and trade in the digital currency without any worry of custodian issues.

According to Antony Portno, the founder of Traders of Crypto, “the approval of bitcoin ETFs undoubtedly further boosts the credibility of bitcoin as a global investment.”

ProShares Bitcoin ETF: Best Launch Ever

The first-ever bitcoin ETF — ProShares Bitcoin Strategy ETF BITO — went live on Oct 19 and has attracted more than billion dollars of capital in just two days. This makes BITO the fastest ETF to reach the $1 billion milestone in history. Currently, the ETF has AUM of $1.2 billion (read: The First US Bitcoin ETF is Here!).

This fund does not invest directly in bitcoin but seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. It comes with an expense ratio of 0.95%. Investors should note that futures-based products are not as efficient as the physically-backed products in general as derivatives add another layer of complexity. Due to rollover costs, these ETFs may not closely track the spot price of the cryptocurrency.

The Chicago Mercantile Exchange, which regulates futures trading, sets limits on the number of futures contacts issuers can own per month. If an issuer hits the limit, it may be forced to buy contracts for more months in the future, potentially creating contango, or when prices of futures exceed spot prices.

Other ETFs

The second ETF in the space — Valkyrie Bitcoin Strategy ETF BTF — launched on Oct 22 has accumulated $51.1 million in its asset base. This fund also invests in bitcoin futures contracts and has the same expense ratio as that of ProShares (read: Bitcoin & Blockchain ETFs: What Investors Should Know).

The third product in the space is expected to be from VanEck named VanEck Bitcoin Strategy ETF XBTF. This ETF has got approval from the SEC and was scheduled to launch early this week. However, the launch has been delayed. This product will also provide investors exposure to the world’s biggest cryptocurrency by allowing them to trade shares that represent contracts betting on the price of Bitcoin. XBTF is 30 bps cheaper than the ProShares product and could thus become a strong contender in the bitcoin market.

The enthusiasm over ETFs has pushed the cryptocurrency to new all-time highs to above $66,000 last week. According to a recent survey by Gemini, Bitcoin and other digital assets are becoming an increasingly valuable part of peoples' investing strategies. About 21 million Americans already own crypto, and that number is set to more than double to 51 million next year (read: Bitcoin Tops $60K: Time to Invest in Related ETFs?).

The solid trend is likely to continue given that the regulatory risks for bitcoin ETFs have reduced. There are several ETFs in the pipeline that are awaiting regulatory approvals. These are as follows: Ark 21Shares Bitcoin Futures Strategy, Bitwise Bitcoin Strategy ETF, AdvisorShares Managed Bitcoin ETF, Galaxy Bitcoin Strategy ETF, Invesco Bitcoin Strategy ETF, Global X Bitcoin Trust, ARK 21Shares Bitcoin ETF, One River Carbon Neutral Bitcoin Trust, Teucrium Bitcoin Futures Fund, Galaxy Bitcoin ETF, Kryptoin Bitcoin ETF Trust, Wise Origin Bitcoin Trust, First Trust SkyBridge Bitcoin ETF Trust, WisdomTree Bitcoin Trust, NYDIG Bitcoin ETF,  Valkyrie Bitcoin Fund, Valkyrie Digital and VanEck Bitcoin Trust. With these ETFs getting approvals, the crypto market will become increasingly crowded.

Further, Grayscale, the world's largest digital currency manager, plans to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF.


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PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
Square, Inc. (SQ) : Free Stock Analysis Report
 
Coinbase Global, Inc. (COIN) : Free Stock Analysis Report
 
ProShares Bitcoin Strategy ETF (BITO): ETF Research Reports
 
Valkyrie Bitcoin Strategy ETF (BTF): ETF Research Reports
 
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