The first Bitcoin ETF is finally listed in the United States after 8 years of travel since 2013. The US SEC approved the first Bitcoin-Linked ETF after discussing its 5 commissioners.
It is understood that the Bitcoin-Linked ETF Proposal will take effect automatically unless the SEC rejects, delays, or asks further questions. From October 15-18, there was no rejection, delay, or further questions. On October 19th at 9:30 am, ProShares CEO Michael Sapir rang the bell on the NYSE. It is a milestone in the history of Bitcoin, with the public listing of Bitcoin-Linked ETFs by ProShares under the ticker symbol BITO. After 4 days of trading since October 20th, $ 1.2 billion is flowing into the Bitcoin-Linked ETF and the Bitcoin price has hit a new record.
The fee for the ETF is known to be 0.95% which is only half the fee for GBTC which is 2%. At the same time, Grayscale Investments plans to apply to convert the world’s largest Bitcoin fund into a spot ETF, according to an expert. Bitcoin trust is not what Grayscale wanted from the start. In January 2017, Grayscale filed an application with the SEC to list Bitcoin spot ETFs, but withdrew it in October because the SEC found the Bitcoin market to be extremely risky. Now it seems that Grayscale is never giving up the Bitcoin ETF.
What is an ETF?
ETF (Exchange Traded Fund) is an exchange-traded open index fund. It is a traditional financial market concept that is listed on exchanges and is open with variable fund shares such as BUZZ ETF, ARK ETF, Vanguard ETF and SPY ETF.
ETF vs. mutual funds
Compared to traditional investment funds, the stock exchange listing is characterized by standardized products for investors, all-day trading and improved liquidity.
- Immediate transparency of stock ownership
It enables all investors to find out about the fund’s share on a daily basis, contributes to arbitrage and guarantees that ETF and the underlying assets are traded independently and relevantly.
The capital gains from ETFs are far less than from related mutual funds, as the intrinsic characteristics of the incorporation and redemption mechanisms allow ETFs to move assets in and out tax-free among all investors.
- Investors are not influenced by the behavior of other ETF investors.
It’s incredibly important because no matter where you are the sole ETF owner or one of millions of shareholders, you will not be affected by the engagement or withdrawal of other investors. It is very different from mutual funds, where fees on assets are levied on the investor base.
What is the first Bitcoin-Linked ETF in the US?
The Bitcoin-Linked ETF is a crypto-based traditional ETF and financial investment product. Compared to investing directly in Bitcoin and their trust funds, there is no guarantee that the Bitcoin-Linked ETF can bring the investors desired profits, but offers a lower investment entry.
The first Bitcoin-Linked ETF is the ProShares Bitcoin Strategy ETF (BITO), which is to be created by the asset management company ProShares. ProShares on Linkedin shows that it has been at the forefront of the ETF revolution since 2006. With one of the largest series of ETFs in the country, the company offers innovative strategic and tactical ETFs designed to manage risk and increase returns. In addition to various positive tracking index ETFs, it also includes reverse ETFs with low leverage.
The ProShares Bitcoin Strategy ETF seeks capital appreciation primarily through actively managed exposure to Bitcoin futures contracts. The fund does not invest directly in Bitcoin. Therefore, the “bitcoin-linked ETF” refers to standardized cash-settled Bitcoin futures contracts that are traded on commodity exchanges registered with the Commodity Futures Trading Commission (“CFTC”). The value of Bitcoin futures is determined by reference to the CME CF Bitcoin Reference Rate (“BBR”), which is an indication of the price of Bitcoin on certain Bitcoin cash exchanges. The fund aims to invest in cash settled Bitcoin futures in the front month. Front-month Bitcoin futures contracts are the contracts with the shortest maturity.
Highlights of the first Bitcoin-Linked ETF in the USA
- The Fund does not take any temporary defensive positions. The Fund generally holds its Bitcoin futures contracts during periods when the value of Bitcoin is constant or decreasing, as well as during periods when the value of Bitcoin is increasing. In order to maintain exposure to Bitcoin futures contracts, the Fund must sell its futures contracts shortly before expiration and replace them with new futures contracts with a later expiration date. This is often referred to as “rolling” a futures contract. Futures contracts with a longer term can be valued higher than futures contracts with a shorter term, a relationship called “contango”. When futures contracts that are in contango roll, the Fund sells the expiring contract at a relatively lower price and buys a longer-term contract at a relatively higher price. That is, the fund “renews” contracts on a permanent basis and does not exclude them. Conversely, futures contracts with a longer term may be valued lower than futures contracts with a shorter term, a relationship known as “backwardation”.
- The Fund aims to invest fully in these portfolios at all times in order to gain exposure to Bitcoin futures
- The fund does not invest in the current “spot” or cash price of Bitcoin and does not seek direct exposure to it. The fund is classified as nondiversified, which means that it can invest a relatively high percentage of its assets in financial instruments with a single counterparty or a small number of counterparties.
- The Bitcoin-Linked Futures Contracts on CME can vary significantly from Bitcoin spots in terms of investment strategy risk, market and volatility, liquidity risk, bitcoin futures risk, bitcoin futures capacity risk, cost of futures investment risk, bitcoin risk, risk of Differentiate between cash and money market instruments, subsidiary investment risk, credit risk, counterparty risk, non-diversification risk, market price deviation risk, risk of authorized participants, cash purchase and redemption risk, early closing / delayed closing / trading suspension risk, active management risk, new fund risk, tax risk and valuation risk.
Differences between GBTC and Bitcoin-Linked ETF
- ETF allows market makers to create and buy back shares at random, while GBTC does not allow this and the fund shares can only be monetized in secondary markets.
- GBTC imposes a 6 month high premium lock-up period, while ETF has better liquidity and is free of premium or discount.
- GBTC trading fees are very high, including brokerage fees, annual management fees, and premium. The Bitcoin-Linked ETF has lower fees. For example, the BITO only charges 0.95% of management fees, while the first Canada-listed Bitcoin ETF in North America – BTCC – has a lower management fee of 0.75%.
- GBTC is only available to qualified investors $ 50,000 or more. The Bitcoin-Linked ETF is subject to only a few restrictions with regard to the qualification and amount of investors.
In summary, after more than ten years of insane development, the cryptocurrency market is gradually becoming rational again. Recently, the cryptocurrency market is going through a tremendous revolution and transformation. The crypto marketplace, including bitcoin, has caught the attention of traditional financial markets and is moving towards standards and compliance.
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