- Two years ago, the first U.S. exchange-traded fund (ETF) linked to Bitcoin
broke records, reaching $1 billion in assets faster than any other ETF in history. - The ProShares Bitcoin Strategy ETF (BITO) currently has a value of $1.4 billion and tracks the crypto token through futures contracts.
- Peck also mentioned that Bitcoin itself is already an investable asset, accessible to anyone with the ability to establish a digital wallet.
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Once Spot Bitcoin ETFs are approved in the US, will Bitcoin Futures ETFs survive? Opinions of market experts!
Spot Bitcoin ETFs are garnering all the attention: What about others?
Two years ago, the first U.S. exchange-traded fund (ETF) linked to Bitcoin broke records, reaching $1 billion in assets faster than any other ETF in history. However, the coming weeks will test whether competing Bitcoin futures ETFs, such as ProShares Bitcoin Strategy ETF (BITO), can survive.
The ProShares Bitcoin Strategy ETF (BITO) currently has a value of $1.4 billion and tracks the crypto token through futures contracts. Such a product has been the only way for U.S. investors to add Bitcoin ETFs to their portfolios as regulators have not approved ETFs tracking the crypto token.
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However, the Securities and Exchange Commission (SEC) is now in the process of approving one or more pending applications for expected “spot Bitcoin” ETFs, which are anticipated to allow investors to be exposed to Bitcoin more affordably.
Will WisdomTree’s digital asset head, Will Peck, said, “I don’t think there’s much life left for this product after the launch of a spot Bitcoin ETF.” Peck acknowledged that Bitcoin futures ETFs might provide some utility in short-term trading, but he said, “if you’re a financial advisor or a long-term investor, I can’t see a reason to own it.”
This summer, an accelerated flow of spot Bitcoin ETF applications followed a federal appeals court decision in August, which included a case against the SEC regarding a Bitcoin ETF. U.S. regulators are still skeptical about whether spot Bitcoin ETFs are suitable for investors, partly because tokens with generally low liquidity are susceptible to manipulation. Major trading platforms in this space are subject to various regulatory investigations, and FTX, one of the largest, collapsed a year ago, with its CEO, Sam Bankman-Fried, being found guilty of multiple fraud and money laundering charges earlier this month. However, industry experts believe regulators will approve spot Bitcoin ETFs in early 2024.
If approved, some believe futures ETFs and spot ETFs could coexist. ProShares CEO Michael Sapir, while his firm has not applied for a spot product, said, “I think risk-averse, experienced investors will turn to a product like BITO.” CFTC oversight of the futures market and fund management services provided by a financial giant support this supporting model.
Peck also emphasized that Bitcoin itself is already an investable asset, accessible to anyone with the ability to establish a digital wallet. According to Peck, this should be considered the reason for not expecting significant organic demand for a spot Bitcoin ETF right out of the gate. Peck continued:
“I see the (spot Bitcoin) ETF essentially as a workflow solution, primarily for the wealth management channel.”
Efforts by Grayscale and Hashdex
If spot Bitcoin ETFs are approved, there is a possibility that they may have to fight for pricing, distribution tactics, or differentiation in price with existing ETFs. In addition to applying for a spot Bitcoin ETF from scratch, 10 asset managers, Grayscale, which has a $23.3 billion Grayscale Bitcoin Trust (GBTC), hopes to reinvent it as an ETF – the SEC’s refusal to allow this maneuver led to Grayscale filing a lawsuit. Hashdex is also trying to convert its existing Bitcoin futures ETF into a spot Bitcoin ETF.
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BlackRock, Ark Investment Management, Fidelity, and Invesco are among the companies waiting for the SEC’s decision on potential spot ETFs, which would trade on exchanges like stocks and provide tax exemptions. Spot Bitcoin ETFs, such as BITO and GBTC, are expected to have much lower fees, at 0.95% and 2%, respectively.
Bryan Armour, director of North America passive strategy research, said that because the pending products are very similar and could be launched simultaneously, their fees could be a significant differentiator compared to a typical ETF launch, potentially reducing costs for investors. Providers are likely to compete for investors with low fees because “this is a very big opportunity,” he said.
