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October 18, 2021

First US bitcoin exchange fund will centralise the decentralised

By Eric Johansson

The USA is set to get its first bitcoin exchange-traded fund (ETF) this week, and cryptocurrency evangelists believe that the launch is a major milestone for digital assets. However, some criticise the move because it will add middlemen to a sector famous for abhorring middlemen.

An ETF is a publicly traded fund with shares that can be bought and sold on ordinary stock exchanges. ETFs can hold assets such as gold, currencies or other commodities, usually using an arbitrage mechanism to keep the price of the ETF close to that of its net asset value.

People within the cryptocurrency community have long advocated the launch of bitcoin ETFs, arguing that they would provide the digital asset with respectability and empower more people to trade with bitcoin.

Earlier this year, new Securities and Exchange Commission (SEC) chair Gary Gensler said he would support the launch of bitcoin ETFs. While the market watchdog had previously rejected all applications to launch bitcoin ETFs, Gensler noted that many trusts and funds already invest in bitcoin futures and that he was open to the creation of bitcoin ETFs as long as they complied with existing rules.

Now it appears that the first US-based bitcoin ETF will actually become a reality as early as this week. After filing an amended form on Friday, ProShares has now announced that it will start to trade on Tuesday 19 October.

The SEC had not officially approved the bitcoin ETF on Friday, and the regulator may not actually do so. However, CNBC noted that this won’t necessarily prevent the ProShares launch as NYSE Arca has approved the listing on the exchange.

The ProShares Bitcoin Strategy ETF will trade under the ticker BITO and it is expected to be joined by other funds, such as the Invesco Bitcoin Strategy ETF, the VanEck Bitcoin Strategy ETF, the Valkyrie Bitcoin Strategy ETF and the Galaxy Bitcoin Strategy ETF.

“We believe a multitude of investors have been eagerly awaiting the launch of a bitcoin-linked ETF after years of efforts to launch one,” said ProShares CEO Michael L. Sapir.

“BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider and creating a bitcoin wallet or are concerned that these providers may be unregulated and subject to security risks.”

Cryptocurrency enthusiasts have, unsurprisingly, welcomed the news.

“The approval of a bitcoin ETF undoubtedly further boosts the credibility of bitcoin as a global investment,” Antony Portno, founder of Traders of Crypto, tells Verdict.

Despite market stakeholders believing the bitcoin ETF would enable more people to trade with cryptocurrencies, some have taken issue with the futures product.

Their argument is that while the SEC can better regulate the trade, firms like ProShare and their partners can take a big cut of the earnings rather than the investors themselves taking home all the money

“The main thing is that the Bitcoin Futures ETF adds a centralised middleman – that lines its and Wall Street’s pockets – to a solution whose main purpose is to remove middlemen,” comments Nicklas Nilsson, thematic analyst at GlobalData and author of a recent thematic research report on blockchain.

“Of course, an upside is that it increases the inflow of capital. And it’s also worth mentioning that I expect the futures-based ETF to act as a stepping stone to launching a spot-market-based ETF.”

Or as Raoul Pal, CEO of Global Macro Investor, put it during an interview with the Savvy Finance YouTube channel: “Everyone says, well bitcoin is up 300%, how come I’ve only made 100%? It’s because you’ve been screwed. If the SEC really cared about looking after investors they wouldn’t allow these futures contract versions.”

Nilsson holds assets in both bitcoin and ether.

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GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

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