Chris Curl,
Editor
Dec. 28, 2023
A number of crypto ETF firsts in 2023 have been somewhat overlooked due to the still unresolved spot Bitcoin ETF narrative.
The first leveraged Bitcoin futures ETF in the USA was launched by Volatility Shares, with the US Securities and Exchange Commission also greenlighting ether futures funds two years after the first BTC futures ETFs hit the market.
Despite the 2x Bitcoin Strategy ETF by Volatility Shares (BATS: BITX) amassing approximately $170 million in assets, the initial interest in ether futures ETFs has not been as expected. The six ether futures ETFs launched on Oct. 2 had a combined asset under management value of approximately $34 million as of Dec. 20.
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View ReportsWhile both futures and spot ETFs offer investors an opportunity to gain exposure to Bitcoin, there are significant differences that make spot ETFs a more attractive option for investors.
A futures ETF, like the ones currently approved by the SEC, buys Bitcoin futures contracts instead of actual Bitcoin. This means that the performance of a futures ETF may not accurately reflect the price of Bitcoin itself, due to factors like roll costs and contango.
On the other hand, a spot ETF buys and holds actual Bitcoin, so its performance more directly tracks the price of Bitcoin.
Additionally, the management fees for futures ETFs tend to be higher than those for spot ETFs, as the futures contracts need to be rolled over monthly, which incurs additional costs.
Therefore, even though both types of ETFs allow exposure to Bitcoin, spot ETFs provide a more direct, cost-effective, and accurate representation of Bitcoin investment.
With respect to crypto funds attracting investor interest recently, the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) — the first and largest Bitcoin futures ETF — saw its assets under management peak at $1.7 billion earlier this month. However, an "exodus" of assets from BITO could occur when spot Bitcoin ETFs are approved.
Funds directly holding Bitcoin, proposed by a variety of fund groups over years, are yet to receive regulatory approval. The SEC is also considering proposed spot Ethereum ETFs — another development in 2023 currently being sidelined by the Bitcoin ETF race.
As investors wait for a ruling on spot ETFs, many have turned to funds investing in blockchain- and crypto-related stocks. These funds experienced record weekly inflows in the first half of December. The Amplify Transformational Data Sharing ETF (NYSEARCA: BLOK) benefited the most, seeing net inflows worth $267 million from Dec. 1 to Dec. 20.
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View PublicationsThere's a growing list of issuers attempting to launch a spot Bitcoin ETF, with Tidal Investments and 7RCC aiming for a fund that would hold BTC and carbon credit futures contracts.
The SEC's decision deadline on a spot Bitcoin ETF proposal by Ark Invest and 21Shares is Jan. 10. The authority could decide to approve or reject other similar funds, including those from financial powerhouses like BlackRock (NYSE: BLK) and Fidelity.
Several fund firms have been meeting with SEC officials to discuss their planned Bitcoin funds, with BlackRock having five such meetings. Grayscale is also in discussions with the SEC to convert its Bitcoin Trust (OTCMKTS: GBTC) to an ETF. Key talking points have been in-kind and cash creation and redemption models for these funds.
Bloomberg Intelligence analysts predict a 90% chance of spot Bitcoin ETF approval by Jan. 10, supported by ongoing meetings and application revisions.
However, there's a possibility that the SEC may ask Ark Invest/21Shares to refile the application to buy more time, rather than outright rejecting it. This is what I see as the most likely scenario. It will buy the SEC a little bit more time until the final deadline for the Blackrock ETF in March, which I do believe will get approved.
Once permitted to launch, spot Bitcoin ETFs are anticipated to attract substantial investor interest, which will almost certainly boost BTC's price. Combined with the Bitcoin Halving and the Fed easing, crypto is poised to push much higher in the year ahead.
Don’t miss out on the next wave! See what cryptos I’m buying now.
Keep coming back,
Chris Curl
Editor, Daily Profit Cycle