A Bitcoin exchange-traded fund (ETF) is poised to begin trading on Tuesday next week according to multiple reports, unless the U.S. Securities and Exchange Commission (SEC) decides to nix it.
The SEC has until midnight on Monday night to object to the filings. Otherwise, the long awaited ETF will go live. Dave Nadig, chief investment officer and director of research of ETF Trends told CNBC that he gave the ProShares Bitcoin Strategy ETF a 75% chance of approval. According to sources from Bloomberg who preferred not to be named, the SEC likely would allow the ETF to go through for trading.
Approval of the ETF would happen after a long list of rejected applications dating back to 2013 when Facebook co-founders and early Bitcoin investors Cameron and Tyler Winklevoss made the very first ETF submission to the SEC. Should ProShares' ETF get the greenlight for trading on Tuesday, we could see a wave of others being trading shortly after, including those from Valkrie, VanEck, and Galaxy.
Most in the crypto space wanted a spot-based trading product rather than futures-based, even if the development is effectively still a milestone for Bitcoin adoption.
On-chain Bitcoin analyst Willy Woo recently said that the approval of a Bitcoin futures-based ETF would ostensibly introduce an expensive and inefficient way of investing in BTC.
“If a Bitcoin futures ETF is approved, IMO it will be an expensive way to hold BTC. The ETF effectively outsources the holding of BTC to hedge funds through a chain of profit incentives.
Mechanics: ETF longs futures. Futures gets more expensive relative to spot. Hedge funds sells futures while buying spot (to net the cash and carry profit). Hedge funds effectively holds spot BTC by proxy for the ETF. The fee being their cash and carry yield (10%+ annualised).”
With that said, moves for a “physical” Bitcoin ETF backed by actual BTC are underway. Mark Hougan, CIO at Bitwise Invest recently filed for one, detailing his reasoning in a thread.
“First, why do we think BTC is better than futures?
A. Costs: It could cost over 5-10% per year to roll the futures (“contango”). Plus another 1-2% in fees.
B. Dilution: ETFs can't hold 100% BTC futures due to rules. Most aim for 85%. So, 15% is other stuff, even bonds!
C. Tail risk: Remember $USO in 2020? Position limits, liquidity, etc — things can break.
In sum: A futures-based Bitcoin ETF comes with ~6-12% all-in costs, ~15% dilution, and tail risk.
Useful for certain investors, but not ideal.”
The impending approval of a Bitcoin ETF – futures or not – comes as Bitcoin hovers just a hair below the key psychological level of $60,000. BTC has doubled since its yearly lows at the $29,000 level and is just over 10% away from making new highs after months of what many thought was the beginning of a multi-year bear market.
