Bitcoin Futures ETF to Start Testing Market on Tuesday Amid Pullback Talks
The first bitcoin (BTC) futures exchange-traded fund (ETF) to be approved by regulators in the US is said to start trading this week. And although it is only backed by “paper bitcoins” in the form of futures contracts, the ETF is still expected to serve a purpose in the market. Meanwhile, a pullback is now expected after strong BTC rally this month.
Out of the many ETF providers that have filed proposals with the US Securities and Exchange Commission (SEC), the ProShares ETF with the ticker BITO should be the first one to launch as it is said to begin trading on the NYSE Arca exchange when markets open in the US on Tuesday.
And with ETF trading set to commence, traders are not only asking themselves how the ETF will impact the spot price of bitcoin, but also who will use an ETF which does not offer direct exposure to bitcoin.
Meltem Demirors, Chief Strategy Officer of crypto asset management firm CoinShares, called the bitcoin futures that the ETF will be backed by “notoriously capital inefficient,” and said it “feels like the SEC is taunting the CFTC [Commodity Futures Trading Commission – the regulator in charge of the futures market].”
Others also expressed a similar sentiment, with for instance Eugene Ng of crypto exchange Gemini noting that retail investors can already buy bitcoin directly on exchanges or access it via ETFs listed outside the US, while institutions can buy BTC futures on the Chicago Mercantile Exchange. “I am still scratching my head,” Ng said.
Still, not everyone shared the opinion that a futures-backed ETF is unnecessary. Commenting on the SEC’s decision to allow the ETFs to be listed, Matt Senter, Chief Technology Officer and co-founder of the BTC rewards app Lolli, said that a bitcoin ETF could give bitcoin exposure to some people who for various reasons can’t or don’t want to hold the coins directly.
“By allowing individuals to invest in bitcoin through ETFs that track its underlying value, investors can become familiar with bitcoin while fielding aspects of the ownership experience that may be daunting to crypto novices – such as navigating crypto exchanges, wallets, and private keys,” Senter said in an emailed comment.
And while the traders and investors wait for the launch of the highly anticipated bitcoin ETFs, the bitcoin market looks tight at the moment, according to Chief Economist at Chainalysis, Philip Gradwell.
Writing in his latest Market Intel Report, Gradwell said that “the 30 day average of bitcoin inflows to exchanges is just 44,000 bitcoin, 30% below the 180-day average” and that institutional investors also appear to be accumulating BTC.
“Since that USD 30,000 low on 20 July, institutional investors, those holding at least 1,000 of bitcoin, have increased their holdings by 172,000 bitcoin and institutional traders have acquired an additional 68,000,” the economist said, adding that “it seems these large players took advantage of low prices to stock up.”
And although tight supply means the market could move higher quickly, Gradwell also noted that a bitcoin ETF means less to the space today than it would have done a few years ago, given that many potential buyers have already taken the effort to learn how to trade actual cryptocurrencies. The delayed ETF has “likely led to greater crypto adoption,” Gradwell said.
“If people had just got crypto exposure from an ETF over the last few years, then the traditional financial system would be much more insulated from disruption than it currently is. As it is, millions of people are now on-boarded into crypto,” Gradwell wrote, emphasizing that this is “actual crypto,” which is a prerequisite to using DeFi and Web 3.0 applications.
As for the immediate market reaction to an ETF launch, some traders and analysts warned over the weekend that a pullback in the bitcoin price may be on the horizon.
Speaking with CNBC on Friday, Morgan Creek Capital Management CEO and Chief Investment Officer Mark Yusko, said that he “wouldn’t be surprised” if the market consolidates for a bit instead of moving straight to USD 100,000, which he said “a lot of people” think will happen by year end.
“Look, we’re up 40% this month which is only 15 days old,” the hedge fund manager and noted BTC bull said, adding that the market appears “overbought” and that we could see a “buy the rumor, sell the news” type of situation.
Regardless of the price impact the new ETFs may or may not have, however, it might be that the SEC’s approval could mean trouble for at least one existing regulated bitcoin investment vehicle, namely the Grayscale Bitcoin Trust (GBTC).
It is likely that GBTC will become less attractive to investors now that an ETF exist, given the relatively high fees that GBTC is known for.
As shared by Bloomberg’s James Seyffart on Twitter on Friday, the new ETF will have a fee of 0.95%, less than half of the 2% fee charged by GBTC.
There it is! Bloomberg's data team in the process of adding the ProShares Bitcoin Strategy ETF to the terminal. Ticker will be $BITO. 95 bps — less than half $GBTC's 2% fee. This thing is going live next week. Either Monday or Tuesday. pic.twitter.com/Lil4eHVdmr— James Seyffart (@JSeyff) October 15, 2021
To get around this problem and remain competitive, Grayscale has previously said it hopes to convert its GBTC to a “physical” spot ETF, backed by actual bitcoins rather than futures contracts. And with the recent approvals for futures-based ETFs, Grayscale is now taking the opportunity to move forward with a spot ETF, CNBC reported on Friday.
According to CNBC’s source, who declined to be identified because the plans were not yet public, the firm is in the process of applying for a bitcoin spot ETF, which would begin a 75-day review period where the SEC can object to the proposal.
On Monday, Grayscale confirmed that they will file for GBTC to be converted into an ETF.
What does that mean? Once there’s official and verifiable evidence of the SEC’s comfort with the underlying #Bitcoin market – likely in the form of a Bitcoin Futures ETF being deemed effective – the #NYSE Arca will file a document called the 19b-4 to convert $GBTC into an ETF.— Jennifer Rosenthal (@jenn_rosenthal) October 18, 2021
In terms of this week’s first ETF listing, there has been some uncertainty as to whether the launch day will be Monday or Tuesday. But according to Bloomberg’s senior ETF analyst Eric Balchunas, BITO will indeed launch on Tuesday as the first bitcoin futures ETF.
Tomorrow morning, ProShares will launch its ETF on the New York Stock Exchange, the firm and the exchange told The New York Times.
If the SEC still takes no action to stop the launch of the ETFs, the next ETFs in line to be listed would be either the Invesco Bitcoin Strategy ETF or the Valkyrie Bitcoin Strategy ETF, Bloomberg Intelligence analyst James Seyffart indicated before the weekend.
“Valkyrie [is] almost certainly going to begin trading next week,” Seyffart said, explaining that it has filed the necessary paperwork to be registered for trading on an exchange. He added that he is still waiting to hear from Invesco, which “could” also launch an ETF the same week.
AT 12:16 PM UTC, bitcoin traded at USD 61,180, almost unchanged over the past 24 hours and up by 12% over the past 7 days. However, bitcoin still outperformed all other coins in the top 10 by market capitalization today, with the exception of dogecoin (DOGE), which rose by 8% in a day and 12% in a week.
Why would institutions buy into a Bitcoin futures ETF when they have access to CME? IMO just another way for hedge funds to profit by arbing futs basis via cash/carry trade & anyone buying the ETF will be buying at a premium to spot.— Will Clemente (@WClementeIII) October 16, 2021
Spot Bitcoin ETF > Futures ETF
I’m skeptical of cash-settled bitcoin futures. Of course this is the one they approve. Let’s you short bitcoin without having bitcoin. https://t.co/MElNlZi2u6— danny ⚡️ deezy (@dannydiekroeger) October 18, 2021
#Bitcoin Options volume and open interest have exploded higher over the month of October.— glassnode (@glassnode) October 18, 2021
Open interest is up an incredible +107% ($6.3B) since the September lows.
Live Chart: https://t.co/tVIEHlabIM pic.twitter.com/Z0SMh1GQon
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(Updated at 15:20 UTC with a comment from Grayscale.)