Will First Bitcoin Futures ETFs Open Crypto Floodgates in 2022?

发布于 Nov 8, 2021 | 部落格

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  • First Bitcoin ETFs launch sent the crypto space into a frenzy
  • VanEck got approval from U.S. SEC to launch its Bitcoin Strategy ETF (XBTF) as the third Bitcoin ETF
  • The XBTF boasts cheaper fees than ProShares and Valkyrie
  • Bitcoin spot ETF cannot be ignored in 2022

After years of lobbying, this past month has finally seen a batch of Bitcoin futures exchange-traded funds (ETF) get the greenlight by U.S. regulators. This long-awaited decision has finally allowed traditional investors to get exposure to the largest digital asset on earth. And it’s started off to great success so far.

While many crypto advocates have bemoaned the fact that a futures ETF was approved before a spot ETF, industry sentiment is that it’s only a matter of time before cryptocurrencies like Bitcoin and Ethereum become available to traditional investors on the world’s biggest stock exchanges. 

ProShares ETF makes history

ProShares Bitcoin Strategy ETF (BITO), managed by ProShares, is now the first U.S.-approved ETF to offer exposure to Bitcoin.

The groundbreaking approval of the ProShares Bitcoin Futures ETF sparked a major rally that saw Bitcoin and most leading cryptos hit new all-time highs. Two days after the announcement, Bitcoin rallied to an all-time high of $66,930, pushing the crypto industry to a $2.66 trillion valuation

Three days after ProShares launched its Bitcoin ETF on the New York Stock Exchange, Valkyrie Investments launched the Valkyrie Bitcoin Strategy ETF on Nasdaq

BITO isn’t diversified or structured like a typical ETF. Normal ETFs derive their value because authorized participants (AP) can deliver assets equal to the ETF to create a share, and pocket the difference between the price of the individual shares and the new ETF share they created.

BITO is created in a similar fashion as bonds: through cash creation. This means that the AP provides cash to the ETF provider for BITO shares in return. No Bitcoin is purchased or traded in the creation of BITO, meaning the daily volume of Bitcoin (BTC) remains the same.

While it may appear that The Securities and Exchange Commission (SEC) have finally signaled that cryptocurrencies are here to stay, it’s time to start asking when will a physical Bitcoin ETF be released, and whether a futures ETF is the correct format to begin the mainstream launch of cryptocurrency assets. 

Bitcoin enthusiasts were hoping for a best-case scenario that created mass adoption for virtual assets (VAs) through traditional investment vehicles backed by real assets. 

Van Eck Joins the Bitcoin ETF Frenzy

Basking in the euphoria of the first ETF approvals, cryptocurrencies across the board enjoyed a strong rally. While more Bitcoin Futures ETFs were expected to be listed, however, ETF mania has cooled off slightly since.

Van Eck has filed with the U.S. SEC to launch its Bitcoin Strategy ETF (XBTF) for the next ETF. Van Eck’s first filing for a Bitcoin (spot) ETF was in December 2020. However, while its spot ETF filing is still under consideration, its recent Futures filing seemed to get the go-ahead with little fanfare and is expected to hit the market “as soon as practicable.” This would make it the third Bitcoin ETF to make its debut on Wall Street.

While we have seen unparalleled success and rising interest in Bitcoin Future ETFs, with ProShares hitting $1 billion on its debut, VanEck’s Bitcoin ETF is hoping to change the game.

Van Eck Makes ETF Futures Investing More Fee-sible 

One of the most noticeable improvements VanEck is bringing to the table with its Bitcoin ETF is a significant reduction in the management fee of its fund. VanEck’s ETF carries only a 0.65% management fee.

While ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Investments’ Bitcoin Fund (BTF) both charge 95 basis points (bps), VanEck drops the management fee to 65bps. This makes VanEck not only cheaper than other Bitcoin ETFs in the U.S., but also those operating in European markets.

According to Kenneth Lamont, a senior fund analyst at Morningstar, while BITO has the first-mover advantage, the significant fee difference could see investors switch to VanEck’s offering.

Is the ETF race finally over?

After an eight-year race to create Bitcoin ETFs and become the first ones to do it, it seems the dust has finally settled. However, not everyone is happy about it, especially Bitcoin holders.

Being a futures contract, the asset itself is not backed by physical Bitcoin. Rather, part of it is placed in existing Bitcoin term futures contracts with expiration dates in the near future, and about 25% placed into U.S Treasury bills. 

The road to cryptocurrency acceptance has always been a marathon; the next leg of the race will be the addition of a spot Bitcoin ETF, as this will require actual Bitcoin to be purchased and converted to ETF shares by AP providers. 

Is an asset-backed ETF likely to be approved?

With Bitcoin rallying to new all-time highs and maintaining strong support of around $60,000, other asset managers are taking the opportunity to offer virtual asset exposure to traditional investors.

Within a few days of the release of the Proshares ETF, digital asset manager Valkyrie launched its own ETF, the Bitcoin Strategy ETF (BTF). Valkyrie believes there is strong demand for Bitcoin-tracking products in the market at present. Valkyrie has also proposed a Bitcoin-backed ETF, but their proposal has been delayed until January of next year. With the decision on Valkyrie’s physical Bitcoin ETF pushed past Q4, it’s unlikely that the SEC will approve any ETF that actively holds or manages cryptocurrencies this year. 

Grayscale has also drafted a proposal to convert its Grayscale Bitcoin Trust ETF (GBTC) to a Bitcoin Spot ETF, citing the SEC’s clearance of the first Bitcoin Futures ETF. 

With market trends and newly approved products bringing new investment vehicles, the SEC must soon clarify where virtual assets fit into the financial sector, and if ETFs can actively hold Bitcoin, rather than own speculative contracts. 

It’s possible the SEC is worried about authorized participants demanding greater adoption once they are able to actively contribute to a physical Bitcoin ETF, and whether asset managers will attempt to list more volatile or less established cryptocurrencies.

Current SEC sentiment

The SEC has never tried to hide its concerns about how coins for an ETF would be managed, if the asset is too volatile for regular investors, or if funds could properly value cryptocurrencies in relation to their managed product. 

During the November 2nd meeting held by the Securities Industry and Financial Markets Association, SEC chairman Gary Gensler had a lot to say about the regulator body’s current take on the crypto industry’s development. He pledged that regulators will be “very active” in creating regulations to cover the digital currency market. 

Gensler was much more interested in the report released the day before by a Treasury Department-led panel concerning stablecoins. Stablecoins don’t have the same volatility issues most cryptocurrencies deal with, but can be traded instantly by taking advantage of DeFi (Decentralized Finance) technology. He believes a lack of trust in the stablecoin’s underlying asset holdings could create stability problems and signal a step back for the cryptocurrency industry.

Between Gensler’s comment and the recently released FATF guidance, governments and regulatory bodies seem to be signaling they are more concerned with stablecoins and the risk they pose to anti-money laundering (AML) efforts, and that they’ve accepted virtual assets are here to stay. 

Gensler later remarked that the cryptocurrency industry is currently around 13 years old, has entered the “teenage” period of its life, and that “adulthood” can be achieved once it is saddled with broad regulatory oversight to prevent tax fraud or financial crimes.

Conclusion

Currently, these Bitcoin ETFs only help investors speculate on the future value of BTC without allowing for direct investment. The next step for Bitcoin ETFs is for the Securities and Exchange Commission to approve a real (spot) Bitcoin ETF, which will ensure a real investment into the digital asset in order to meet collateral requirements. This will be the real holy grail moment Bitcoin maxi’s have been praying for well over a decade. 

According to the Valkyrie Funds CEO Steve McClurg, a spot Bitcoin ETF is extremely unlikely this year and should only come in 2022. 

As we near the end of 2021, a paradigm-shifting year for Bitcoin and friends, each new day draws louder calls from retail investors, institutions and even U.S lawmakers for a BTC spot ETF. It’s unlikely these demands can be ignored much longer. It’s time to open the floodgates and let the market decide the merits of Bitcoin, just as it does with any other stock.