Market Extra: A ‘spot’ bitcoin ETF ‘ain’t so great’, says ProShares strategist ahead of provider’s futures-linked fund
ProShares is offering the first bitcoin-linked exchange-traded fund in the U.S., giving investors exposure to the cryptocurrency through the futures market as opposed to investing in it directly.
The ProShares Bitcoin Strategy ETF will begin trading Tuesday under the ticker “BITO” on the New York Stock Exchange, the firm announced Monday.
“‘The knee-jerk reaction out there is to see the futures [market] as wanting compared to spot.’”
— Simeon Hyman, global investment strategist at ProShares
“There are no spot bitcoin ETFs or mutual funds that are available right now and there probably won’t be for a little while anyway,” Simeon Hyman, global investment strategist at ProShares, said Monday in a phone interview. “Spot ain’t so great,” he said.
The futures market may be “a better place for price discovery” as it’s regulated and has the benefit of large trading volumes, said Hyman. Investors can access the ProShares Bitcoin Strategy ETF through a brokerage account, obviating the need for one at a cryptocurrency exchange or setting up a crypto wallet, according to the firm.
“There’s a ton of people out there that don’t want those complications,” Hyman told MarketWatch. “It’s been a barrier to them investing in bitcoin.”
ProShares Bitcoin Strategy ETF, which can be bought and sold like stocks, “opens up the opportunity to a large segment of investors” who desire crypto exposure through the ease of a brokerage window, he said. “It is a diversifying asset class” that could be a “small piece” of investment portfolios, he said, recognizing the volatility of bitcoin.
As for spot pricing, the crypto was trading at around $62,000 in midday trading, according to CoinDesk data. That is about double price levels seen late July.
Read: First U.S. bitcoin ETF looks set to debut Tuesday from ProShares Trust
“The knee-jerk reaction out there is to see the futures [market] as wanting compared to spot,” said Hyman. “We don’t really think that’s the case.”
The trading of bitcoin futures ETFs will allow more liquidity into the market, according to Jake Wujastyk, chief market analyst at trading platform TrendSpider.
“Usually the more liquid something is, the less volatile it is,” Wujastyk said. “So it actually may help with some of the volatility in crypto.”
Mary Beth Buchanan, president of Americas and chief legal officer at crypto intelligence company Merkle Science, believes that the Securities and Exchange Commission will one day approve ETFs that invest directly in bitcoins. “At this time the SEC still views the [bitcoin spot] market as not mature enough,” Buchanan said.
The SEC prefers the bitcoin futures market as it is more developed and is regulated by the Commodity Futures Trading Commission, Buchanan noted.
“There is all the market infrastructure that has existed for almost multiple decades for futures trading,” Karan Sood, chief executive officer of financial advisory platform Cboe Vest, told MarketWatch in an interview. “Bitcoin spot trading doesn’t have all the protection aspects that bitcoin futures do.”
However, some argued that bitcoin futures ETFs will confer additional costs to investors.
Such costs include those incurred from “rolling the contracts from one expiry to the next,” Michael Sonnenshein, CEO of bitcoin asset manager Grayscale told MarketWatch’s Mark DeCambre earlier.
As all the future contracts have expiry dates, funds that invest in bitcoin futures will have to buy new ones to replace the ones that are expiring. The mechanism may also expose the funds to “contango” risks, which means when longer-dated futures trade at a premium than the front-month contracts, leading the funds to sell low and buy high.
“What investors should certainly be aware of is the fact that they are not purchasing bitcoin itself,” said Buchanan. “They are purchasing the opportunity for [betting on] a future price. There is more speculation and risk involved in purchasing that kind of a product.”
Check out: Sign up for a new MarketWatch newsletter on crypto, Distributed Ledger, launching next month.