The world of cryptocurrency has been shaken up, again. Specifically, Bitcoin (BTC-USD) has seen its price rise nearly 40% over the last 30-day period. This influx of money to the largest crypto in terms of market cap is due, in part, to the hype surrounding one new tradable product: the ProShares Bitcoin Strategy ETF (BITO). This ETF was made available for trading on Tuesday, and saw nearly record-breaking volume as traders from all corners of the brokerage world jumped on the opportunity.
Until now, one would have to have an account with a specific brokerage or a crypto-trading firm in order to expose a portfolio to the asset class. The idea behind getting this ETF out there was to make it widely available for anyone interested. It took the Gary Gensler-led Securities and Exchange Commission (SEC) 90 days to approve the ETF. Meanwhile, more funds, such as Grayscale Bitcoin Trust (GBTC), have already applied for the same approval and are expected to hit the market over the next few weeks.
What Exactly is it?
BITO is an ETF, or exchange traded fund, which is essentially a basket of several underlying assets. In this case, those assets are not actual Bitcoins. The fund does and will not be backed by actual BTC-USD, as this is not currently permitted by the SEC. As such, the fund does not track the precise spot price of Bitcoin. Instead, it is made up of several Bitcoin futures contracts that are traded on the Chicago Mercantile Exchange. These contracts anticipate the future spot price of Bitcoin and fluctuate accordingly. While the spot price of BTC-USD and BITO may not align perfectly, they are said to move in close relation with one another.
Two Sides of the Coin
While proponents are enthusiastic about the mainstreaming and normalization of Bitcoin and cryptocurrencies in general, detractors are speaking up.
Futures typically regard commodities like oil, or financial products like options contracts. BTC does not fall into either category, as it’s widely considered an asset class of its own. Those less in favor of the new ETF argue that if investors truly wanted exposure, they would be better off simply owning the crypto itself.
The analysts are making their voices heard on the matter. John Todaro of Needham & Co. is optimistic about the new ETF, saying, “We view the development of a US bitcoin ETF as an overall positive for the space and public companies operating within the sector such as COIN and the bitcoin miners.” Investors seem to share his opinion, as firms such as Riot Blockchain (RIOT) and Marathon Digital (MARA) have seen their valuations rise generously over the last few weeks.
Whether taking a pro or con stance, one thing is for certain: this is huge for Bitcoin. This move demonstrates that the controversial and volatile asset is carrying on with its march toward widespread acceptance. The BTC-USD ecosystem is diversifying, and if the fund is SEC approved, perhaps it might appear more attractive and logical to institutional investors.
Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article.
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