Bitcoin rallied to a fresh record high above $65,000 on Wednesday, as excitement over its first exchange-traded fund (ETF) — and another soon to come — reached a fever pitch.
As the largest cryptocurrency by market capitalization spiked by over 7% on the day, investor cheered the Proshares Bitcoin Strategy ETF (BITO), which launched on the the New York Stock Exchange (NYSE) in the previous session— the first ever BTC (BTC) related fund available to U.S. investors. As momentum swept crypto prices higher in a brisk rally, the digital coin traded as high as $66,928.67 in early dealings.
While some market participants have questioned the utility of the new product, it will offer people a new way to gain exposure to BTC via brokerage accounts.
BITO’s debut was the second largest ever for an ETF, reflecting massive interest in the crypto sector. However, incoming buyers — especially first-time crypto owners — should be forewarned: the new Bitcoin ETF(s) won’t trade exactly like the market digital coin that tends to fluctuate wildly.
The Securities and Exchange Commission (SEC) approved the new ETF as futures based, meaning they’re derivative, based on the underlying BTC price. That makes them more complex and expensive to own than holding Bitcoin outright.
But Grayscale Investments and the New York Stock Exchange is moving to convert the world’s biggest Bitcoin fund into a spot-based ETF, capitalizing on the market’s embrace of the new fund and a regulatory environment that appears to be shifting in favor of cryptocurrency.
“The daily correlation of BITO to spot Bitcoin is going to be almost perfect,” Eric Balchunas, senior ETF analyst at Bloomberg, told Yahoo Finance Live, even if BITO will probably miss the price of Bitcoin by 5 to 10% over the course of a few years, he added.
“Advisors probably won’t buy it,” said Balchunas. “Its going to get exciting but that excitement will be driven by traders, not longterm investors.”
Investors have been clamoring for a fund based on spot prices that would better serve retail investors. However, the SEC chose to approve BITO first because, as futures-based products they are governed by a 1940s law act that gives investors a higher degree of protection.
Other Bitcoin ETF contenders — including Grayscale, which offers (GBTC) — remain optimistic that the futures-based ETF will pave the way for a spot product. But near-term, Balchunas remains bearish given that SEC Chair Gary Gensler appears less interested in the spot ETF for Bitcoin, because it falls under a 1933 securities provision which grants less investor protection.
“Gary Gensler just isn’t really comfortable with the 1933 act,” said Balchunas. Referring to the possible timeline for offering for a Bitcoin spot ETF, he added: “If you forced me to pick a date for that I would probably go with a year to eighteen months.”
What investors need to know
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