The U.S. Securities and Exchange Commission (SEC) has approved the first Bitcoin futures ETF issued by the fund management company ProShares on October 15, after five commissioners working for the agency met to examine the matter. The first US Bitcoin futures ETF (trading code BITO) officially began trading on the New York Stock Exchange on October 19. Its first-day turnover reached 24.42 million shares, equivalent to nearly $1 billion. The next day, the BTC price exceeded $66,000, a record high.
SEC first received an application for Bitcoin futures ETFs in 2014. Following this, such applications were all rejected for one reason or another. Hence, Bitcoin futures ETFs never had the opportunity to set foot in the broader mainstream investment market. Over recent years, countries like Canada introduced Bitcoin EFTs, and professional institutions have launched compliant BTC investment channels, such asGreyscale’s GBTC. Despite this, the approval of Bitcoin futures ETFs by the United States, which boasts the world’s most developed financial markets, is of great significance. The high market prices also demonstrated that investors are highly optimistic about the approval.
An ETF (exchange-traded funds) is a type of open-end funds listed and traded on exchanges with variable fund shares. Like closed-end funds, an ETF can be traded on exchanges. Meanwhile, it can also be constantly purchased and redeemed like open-end funds. In the United States, ETF transactions only account for 30% of the total turnover on exchanges. In the conventional financial market, ETFs, which promise low fees and high daily liquidity, are one of the major investment tools.
The approval of the Bitcoin ETFs indicates that the conventional financial market has embraced cryptocurrency and that Bitcoin now has a compliant and mature trading market in the United States. Having been brought under the regulatory framework, the Bitcoin ETF will bring more traditional funding and higher liquidity into the crypto market, thereby building an important bridge that connects conventional finance with the crypto world.
As the approval of the Bitcoin futures ETF releases a positive market signal, many asset management companies have made more proactive attempts to apply for crypto-based finance products. Following ProShares, a large number of investment management companies, such as VanEck, Valkyrie Investments, and Invesco, are waiting for the SEC’s approval. At the same time, institutions like ARK Investment Management LLC, Galaxy Digital, and BlockFi have also suggested the launch of similar investment products by the end of 2021.Grayscale Investments, the holder of the largest BTC fund, filed with the SEC through NYSE Arca to convert GBTC into a Bitcoin spot ETF.
Right now, the Bitcoin futures ETF is still based on the CME-traded Bitcoin futures, and no real delivery has occurred. As such, there is a large gap between its price and the current Bitcoin spot price on crypto exchanges. Compared with the real BTC price, the Bitcoin futures ETF may be subject to price deviations such as premiums or discounts. Hence, many investors are looking forward to the launch of Bitcoin spot ETFs, which can be directly delivered. Furthermore, their value will be anchored to the spot price of the underlying asset. Therefore, spot ETFs will be a more authentic reflection of the real BTC price, i.e. bitcoins traded on crypto exchanges.
In light of the current circumstances, considering the existing secondary markets of Bitcoin are not subject to sound regulatory supervision, the SEC definitely has reservations about the risks of such crypto exchanges. At the same time, conventional exchanges do not provide any secondary market for Bitcoin spot trading. As such, the SEC remains cautious about Bitcoin spot ETFs as it believes that exchanges may manipulate the BTC price.
Although the Bitcoin spot ETF may not be approved anytime soon, the appearance of futures ETF has injected new vitality into the crypto market. From the launch of the Bitcoin futures ETF, we can tell that US financial regulators can no longer ignore the massive trading needs for Bitcoin. Meanwhile, the first-day turnover and the record-high spot price of BTC have also shown the extensive recognition of Bitcoin in mainstream investment markets. As the conventional financial market connects with the crypto market, the latter will receive more funds, which will generate greater market demands for Bitcoin. We have every reason to believe that there will be more crypto-based financial derivatives in the future.