The much-anticipated first US-based Bitcoin exchange traded fund (ETF) has arrived with a mix of both excitement and controversy. Pending no last-minute regulatory interference, the ProShares bitcoin futures-based ETF is expected to go live later today.
While some have celebrated the news, others are more sceptical:
Futures, Not Spot ETF
Last Friday, ProShares filed a post-effective amended prospectus which stated its intentions to list the ETF on Monday, October 18, under ticker $BITO. It is now confirmed that it will instead formally list later today on the New York Stock Exchange. Interestingly, when listed, it won’t be due to formal approval from the SEC but rather, due to the SEC’s lack of objection, within 75 days of the initial application.
Critically, however, $BITO will not provide direct exposure to the bitcoin spot price:
The Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. The Fund does not invest directly in bitcoin.
ProShares, SEC statement
Ordinarily when you buy a regular ETF, the value of the shares is based entirely on the price of the underlying asset. However, when you buy a futures ETF, a host of other factors could lead to the price of the shares diverging from the asset. This creates opportunities such as the “contango trade”, where professional traders are able to exploit opportunities between the futures and spot prices.
Who Benefits From a Futures-Based Bitcoin ETF?
Since the Winklevoss twins’ bitcoin ETF was first rejected in 2013, the narrative has always been that, when granted, a bitcoin ETF would open the door to a host of new participants who are otherwise not interested in dealing with the complexities of self-custody. An ETF, the argument goes, would enable institutional and retail investors to gain exposure to bitcoin in a simple, trusted and familiar format.
The futures-based ETF doesn’t do quite that, but it is no doubt a step in the right direction. While it provides bitcoin with increased recognition and greater credibility, some have suggested that the futures-based ETF will ultimately act as a bridge for others to launch a spot market-based ETF. Despite “broadening the bitcoin tent”, the futures-based ETF has met with criticism from some unlikely sources.
Raoul Pal, a former Goldman Sachs hedge fund manager, appeared to be defending retail investors in his scathing take on Twitter, saying that hedge funds would “make a fortune out of this”:
This vehicle means that the arbitrager takes their slice, the ETF provider takes their slice, the lawyer who set up the fund takes their slice, the administrator, the auditor … I mean, everybody is taking a slice out of your pie.
Raoul Pal, Real Vision
Others, “toxic maxis” such as Bitcoin Tina, were less charitable in their assessment:
Despite Canada and Brazil both having bitcoin ETFs, a US-based ETF with direct exposure to bitcoin’s price remains outstanding. While approval is expected in 2021, the overall sense of regulatory hostility towards the crypto sector suggests that it isn’t necessarily a sure thing.
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