ProShares’ Bitcoin ETF Nearly Breaks the Record for an ETF Launch

ProShares’ Bitcoin ETF Nearly Breaks the Record for an ETF Launch

 Published: October 22nd, 2021

America’s inaugural bitcoin futures ETF launched this past Tuesday (19th October), with hungry investors gobbling up USD 280 million in shares in the first 20 minutes alone. By the time markets closed, shares in the new instrument had racked up close to USD 1 billion in trading volume.

The ProShares’ Bitcoin Strategy ETF (BITO) began its life on the New York Stock Exchange (NYSE) after receiving SEC approval the previous Friday (15th October). Investors looking for indirect exposure to the leading crypto began buying shares tied to BTC’s future price, which lifted to USD 42.15 at one stage, a 5.3 per cent increase from its starting net asset value of USD 40. BITO shares finished their opening session at USD 41.93, a same-day boost of 4.84 per cent.

Analysts at Bloomberg write that the volume traded came close to breaking a record. While BITO didn’t reach the USD 1 billion mark, it came close. Bloomberg says USD 994 million in BITO shares changed hand on the 19th. Only one ETF in US history has managed to reach USD 1 billion on its opening day, BlackRock’s Carbon Transition Readiness ETF, which launched in April of this year.

‘ While we thought it would be a hit, this level of interest wasn’t expected,’ said Bloomberg ETF analyst James Stewart. ‘From past measures, trading volumes of around USD 250 million on the first day would have marked the launch a success. BITO reach that level in the first 30 minutes.’

The new ‘crypto ETF’ gives US retail and institutional investors a vehicle not benefit from bitcoin, exposure that doesn’t require actually owning or storing the coin directly, a process many investors find technically confusing.

As welcome as the ProSHares launch is, market watchers have noted that this first American crypto ETF comes with a catch. It’s limited to futures, meaning investors buy and sell shares of contracts that bet on BTC’s future price at an agreed point in time. The market still craves a spot crypto ETF, with a long list of potential providers already waiting on SEC approval. These spot ETFs would be pegged directly to the price of bitcoin.

The SEC is widely seen to be dragging its heels on allowing a ‘true’ bitcoin ETF to come to market. The agency has said it has concerns about crypto market manipulation that need to be addressed. Chairman Gary Gensler said this past August that the commission would be minded to say yes to an ETF that tracked Bitcoin futures as a first step, probably owing to the fact that futures markets are already regulated by the SEC’s sister body, the CFTC.

While direct exposure bitcoin ETFs pegged to the spot market aren’t yet available in the US, across the border in Canada, they’ve been hugely successful.

However, as a first step, the ProShares’ Bitcoin Strategy ETF has proven again that America’s traditional finance sector is hungry for new ways to add to its growing hoard of cryptocurrency investments.

Wall Street signals intent

Now that the first, long-awaited bitcoin ETF has arrived, Wall Street traders are really getting stuck in.

The Chicago Mercantile Exchange (CME) has recorded open interest in bitcoin futures at USD 3.5 billion, pushing past a previous record set in February 2021. CME is the primary exchange for institutional traders who want to bet on the future price of BTC. Crypto derivatives exchanges FTX and Binance draw mainly retail investors.

With institutional demand on the rise, figures from crypto analytics service BYBT show that CME now commands just under 16 per cent of all bitcoin futures open interest, behind Binance at 24 per cent and FTX at 17 per cent. The overall market now supports USD 24 billion in open interest, a figure that surged in tandem with the price of BTC. Six months ago, open interest in bitcoin futures stood at around USD 2 billion.

With crypto futures, investors bet on what the price of an underlying crypto asset (bitcoin in this case) will be at a future date. Savvy investors can lock in at a lower price and then watch the asset rise in value. Sellers pursue the opposite direction. Open interest is a measure of the cash value of futures contracts that haven't yet expired.

In advance of the ProShares launch, crypto analysts Arcane Research reported last week (wc 11th October) that money in bitcoin options contracts, similar to futures but making final follow-through on the contract optional rather than mandatory, reached its highest point since April. The numbers indicate ‘bullish sentiment is on the up among institutional investors,’ Arcane said in a market commentary around the launch.

As this week draws to a close, that assessment looks even more prescient. The SEC’s approval of ProShares’ bitcoin futures ETF saw trading volumes in the new instrument skyrocket out of the gate.

Open interest is just one indicator of growing bullish sentiment amongst traditional investors. In another report released last week (wc 11th October), crypto data firm Glassnode said that call options contracts are gaining favour, with strike prices above USD 100,000.

‘The open interest in call options dwarfs that input options, which is consistent with the wider bullish market sentiment.’

Call options let investors buy an asset, while put options let them sell it. Glassnode is saying that investors are in a mood to buy and are signalling that they believe the price will eventually hit USD 100k.

What is a ‘bitcoin ETF’?

ETF is an acronym for exchange-traded fund. ETFs package an asset and then sell it in the form of one consolidated stock that’s traceable on public (e.g. regulated) financial markets. ETFs are structured so that their price moves more or less in line with the underlying asset's price.

ProShares’ Bitcoin ETF, however, isn’t quite a pure ETF. The company hasn’t purchased and packaged a holding of Bitcoin. Instead, it's bundled together contracts tied to BTC’s future price.

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