The bitcoin futures ETF from ProShares is set to start trading, waiting on the Securities and Exchange Commission’s approval. Many advocates of cryptocurrency have been attempting to approve an ETF linked to bitcoin for years, and this is expected to set a monumental precedent of investors going more and more for digital currencies.
What is an ETF?
An ETF, or an Exchange Traded Fund, is a security that monitors a separate asset(bitcoin in this case), but is purchased and sold like a regular stock. ETFs are diverse due to their wide range of applications in tracking a wide variety of assets, from prices of commodities, to collections, and even how well specific investment strategies are doing(such as the S&P 500 ETF). Because an ETF is traded on an exchange, everyday investors are able to take part in trading them. Benefits of ETFs, especially when compared with mutual funds, are that ETFs offer diversification, liquidization, lower fees, and more. However, ETFs do not excel in certain areas, as there are higher costs, lower dividend yields, and skewed returns.
The Security and Exchange Commission must approve the ETF in order for it to go active on the exchange, scheduled for Monday, October 18. According to GrayScale Investments CEO Michael Sonnenshein, “A futures is a derivative of the spot market, so if you are comfortable with futures, why wouldn’t you be comfortable with the spot market?” The most significant impact of this situation is that the cryptocurrency market is being opened to a much larger audience than before.
One reason that a bitcoin ETF has not been approved yet is the huge concern that the futures market could be manipulated by the spot market. However, there is a study from Bitwise Asset Management’s chief investment officer Matthew Hougan that shows this worry is baseless, with the futures market taking a lead role.
While the Securities and Exchange Commission(SEC) most likely will not approve a pure-play bitcoin ETF, they are most likely using this as a test run for how much control they need to exercise over the futures market and its performance.