ProShares set to make history with first US-listed bitcoin ETF

Oct 18th, 2021 | By | Category: Alternatives / Multi-Asset

ProShares is poised to win the hotly contested race to launch the first bitcoin-tracking ETF in the US.

ProShares set to make history with first US-listed bitcoin ETF

Further bitcoin-tracking ETFs are expected from Invesco, VanEck, and Valkyrie within weeks.

The ProShares Bitcoin Strategy ETF (BITO US) is set to debut on NYSE Arca on Tuesday 19 October, marking a watershed moment for the crypto asset industry.

Michael L. Sapir, CEO of ProShares, said: “BITO will open up bitcoin exposure 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.”

Several market participants have been petitioning the SEC to greenlight a bitcoin ETF for nearly a decade, stretching back to the Winklevoss twins’ first application in 2013.

The US regulator had always turned down these applications, citing multiple concerns including price volatility, investor suitability, and the potential for market manipulation.

That sentiment appears to be changing, however, a likely reflection of crypto assets’ undeniable march into the mainstream and the approval of crypto ETFs in other countries, most notably in Canada.

While there are a further 18 bitcoin ETF filings active with the SEC, the floodgates have not been fully opened just yet. The SEC appears thus far to be giving the go-ahead exclusively to ETFs that gain their exposure to bitcoin by way of futures contracts, which is what the ProShares product will do.

It will track the value of cash-settled, front-month bitcoin futures linked to the CME CF Bitcoin Reference Rate which aggregates the price of bitcoin across multiple eligible cryptocurrency exchanges.

The ETF is due to list with a management fee of 0.95%. However, with other futures-based bitcoin ETFs expected imminently from Invesco, VanEck, and Valkyrie, the stage could be set for a price war similar to that which occurred in Canada soon after it welcomed its first crypto asset ETFs.

Directly replicating bitcoin ETFs, on the other hand, have not yet passed muster, perhaps reflecting concerns the SEC holds regarding validating the ownership of these funds’ underlying tokens.

This is not to say that futures-based bitcoin ETFs are without issues. Roll costs, as well as the potential for premium and discounts to NAV to emerge due to price limits imposed by the Chicago Mercantile Exchange on its futures contracts, may create a less satisfying tracking experience for investors. In addition, potential dislocations between theoretically unlimited demand for bitcoin futures and the constrained nature of actual bitcoin supply leaves open the possibility for turmoil if trading volumes spike.

Meanwhile, the price of bitcoin has surged in recent weeks on the anticipated listing of the first US bitcoin ETF with a bitcoin token currently trading around $62,000, up 41.5% from $43,800 since the start of October and approaching its all-time high of just under $65,000.

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