Friday , January 21 2022

ProShares Readies Bitcoin ETF for Launch



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ProShares is ready to roll out the first bitcoin-exchanged fund listed in the United States.

The company Bethesda, Md., Submitted paperwork Friday afternoon that paves the way for the launch next week of its Bitcoin Strategy ETF. The fund, which will go through the ticker BITO, and hold bitcoin futures contracts instead of the crypto-currency itself, is expected to start trading on Tuesday.

The planned launch follows a 75-day review by the Securities and Exchange Commission. Assuming there are no objections from the regulator, the fund will be considered ready for trading next week, and the nearby company will give the sector a chance for years on jockey.

The planned launch of the bitcoin ETF follows a 75-day review by the Securities and Exchange Commission


Photo:

Andrew Kelly / Reuters

BITO appears to be the tip of a wider wave of bitcoin futures-based ETFs. Valkyrie Investments, Invesco and VanEck are likely to be reluctant to roll out their own funds this month, followed by Galaxy Digital, AdvisorShares, Bitwise, BlockFi and ARK Investment Management in November and December, analysts said.

The funds are a by-product of asset managers’ eight-year effort to launch ETFs that buy bitcoin themselves. The SEC has not supported this approach, saying bitcoin trading is not transparent enough to protect investors from fraud and manipulation.

In August, SEC President Gary Gensler expressed a preference for ETFs that trade bitcoin futures. Unlike digital currencies, futures trade on regular locations such as the Chicago Mercantile Exchange.

“This only became a reality because the SEC had provided public guidance,” said Todd Rosenbluth, head of ETFs and research for fundamental funds at CFRA.

A bitcoin mining facility in New York State uses electricity from a local hydroelectric plant powered by the Niagara River. The company is part of a group of miners who are trying to make the sector more sustainable, both environmentally and financially. Illustration: Alex Kuzoian / WSJ

There are still risks with bitcoin futures products, as the SEC noted in a tweet on Thursday, linked to an investor bulletin.

“Before investing in a fund that has bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits,” the SEC said.

Futures-based ETFs are sometimes hampered by differences between the futures market and the underlying assets they pursue, and bitcoin is notoriously volatile.

Because of this and other factors, the ETFs may lag behind the performance of bitcoin as it continues. Longer-dated bitcoin futures tend to trade above short-term contracts, a market dynamic known as contango. This can lead to lower returns for funds, as they pay to roll over monthly contracts.

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These funds “should give investors returns equal to the spot price of bitcoin, but the actual returns may be different,” said Karan Sood, CEO of Cboe Vest, which recently launched a bitcoin futures product in the form of a policy fund.

ProShares, Invesco and VanEck and several other asset managers originally proposed to hold other bitcoin-related assets that offer more direct exposure to the crypto-currency itself, including some Canadian ETFs and merged investment trusts.

ProShares changed its strategy to hold only bitcoin futures contracts, according to Friday’s submission. Analysts said the SEC was probably not comfortable with holding other assets, given the problems previously raised by the regulator. The change suggests that other companies are likely to limit their funds to trading bitcoin futures only, analysts added.

Write to Michael Wursthorn at [email protected]

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