Doc's Daily Commentary
Mind Of Mav
The Year Bitcoin Went Mainstream On Wall Street
2021 will be remembered as the year that Bitcoin went mainstream. First came the Coinbase IPO, a watershed moment for the industry as the largest U.S. exchange touched a market cap of over $95 billion on its first day listed on the NASDAQ.
Soon after, El Salvador’s 40-year-old president Nayib Bukele announced that Bitcoin would be considered a national currency. (That experiment is ongoing.) There are rumblings that Brazil might follow suit. (Brazilians have bought more than $4 billion worth of cryptocurrency this year, according to their central bank.)
And this week, Proshares has launched the first Bitcoin ETF in the U.S. on the NYSE. (Exchange traded crypto products have already launched in Canada and across Europe.)
Countless Bitcoin ETFs have been proposed over the years. Until now, the SEC has rejected the idea, but SEC chief Gary Gensler recently softened his tone, noting that an ETF based on Bitcoin futures was more palatable to the enforcement agency. Since mutual fund rules would apply, Gensler believes such a setup would provide “significant investor protections.”
A Bitcoin ETF is a big deal because it provides institutional investors access to crypto exposure through a highly regulated investment vehicle.
Here’s Dealbook:
“2021 will be remembered for this milestone,” said Michael Sapir, the C.E.O. of ProShares. Investors who are curious about crypto but hesitant to engage with unregulated crypto exchanges want “convenient access to Bitcoin in a wrapper that has market integrity,” he said. For nearly a decade, crypto entrepreneurs and traditional finance firms have sought permission to launch a Bitcoin E.T.F. in the U.S., but their applications have been delayed or denied by the S.E.C. Many remain pending.
It’s also just the beginning:
“This is an exciting step but not the last,” Douglas Yones, the N.Y.S.E.’s head of exchange traded products, told DealBook. He foresees a range of crypto-linked E.T.F.s getting approval, eventually. Tomorrow’s E.T.F. launch is another sign of crypto’s mainstream legitimacy in a year of milestones for the industry, including the crypto exchange Coinbase going public. Critics remain wary of cryptocurrencies, as do regulators, but the digital asset craze of 2021 shows few signs of abating.
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.
What Does It Mean?
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.
SEC’s Stand on Bitcoin ETF
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.
How Will The Market React?
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?’
Final Word
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.
The listing of Bitcoin Future ETFs, and subsequently Spot ETFs, would open up crypto to a whole new world of possible investors. 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.
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