Last week was a huge milestone for the cryptocurrency industry, as investors began trading the first Bitcoin futures exchange-traded fund, or ETF.
The funds work by investing in Bitcoin futures, which are essentially an agreement to either buy or sell the asset in the future for a price agreed upon now. These will allow trading through a regular investment account instead of being reliant on a cryptocurrency exchange, which could be a security risk depending on the exchange you choose.
Though the industry really wants more, as in the ETF investing in crypto itself, this is still a really exciting thing for the industry as a whole.
ProShares Bitcoin Strategy ETF
One of the biggest first days ever for ETFs went to ProShares Bitcoin Strategy ETF pulled in more than $550 million from investors who are interested in crypto. Morningstar has reported that more than $1.01 billion in shares was traded.
On top of this, the price of Bitcoin soared to a new record…twice. It hit $64,206.51 on Tuesday, which was a 4% hike, and then by Wednesday, it had topped $66,000, breaking the old record by more than $2,000.
Ben Johnson, Morningstar’s director of global ETF research, said:
“The original intent [of bitcoin], and certainly still the intent of many, was to try to upend traditional finance. Instead, traditional finance has caught bitcoin in its tractor beam, reeled it in and turned it into something that Wall Street is going to make millions if not billions on by creating this whole new ecosystem.”
Bitcoin ETF Approvals Have Been Slow to Come
You might think that the idea of a US Bitcoin ETF is a new one, but that’s just not true. The reality is that companies have been trying to release a Bitcoin ETF for almost a decade, but the Securities and Exchange Commission, SEC, has been slow to approve it. Why? Because the organization states that the Bitcoin market doesn’t have enough regulation and there is a high potential for manipulation and fraud.
Most of the Bitcoin ETF applications out there have been created on “spot markets,” which is essentially investing into a currency in a direct manner. However, in August, Gary Gensler, SEC chairman, hinted that the agency might be more open to a futures-backed Bitcoin ETF, which he feels would be safer for investors to work with.
The change has prompted a ton of filings before this week’s approvals. With the Commodity Futures Trading Commission keeping an eye on US Bitcoin futures and the ETFs under the jurisdiction of the SEC, investors may see some protection, but at the end of the day, these are highly speculative investments.
The SEC will surely approve more Bitcoin future ETFs, but what about ETF investing in the cryptocurrency?
It is likely not going to happen any time soon, according to experts.
What To Know Before Making an Investment in a Bitcoin Future ETF
There is definitely a lot of interest in Bitcoin futures ETFs, but many experts say to do your homework before investing. For some people, Christmas might come early, of course, but with these price swings, you have to get out quickly before it swings back down.
It’s also important to remember that though these funds are highly correlated with Bitcoin, that doesn’t mean that it is going to mirror the value of Bitcoin. Instead, it’s going to track the price of futures, which are extremely unpredictable.
You also need to remember to not put all of your eggs in one basket when it comes to these. Dabbling here and there until you understand it is one thing, but it’s an entirely different matter to make your entire portfolio one that is filled to the brim with these ETFs. As always, you should not invest anything if you can’t afford it.
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