One small step for Bitcoin, one giant leap for mankind. The SEC has finally approved a Bitcoin ETF and in just a second we’ll tell you everything you need to know.
We’re thrilled to announce that America’s first Bitcoin ETF started trading on Tuesday morning, October 19th. The ETF is managed by ProShares and trades under the ticker symbol BITO. A bunch of different financial management companies have been applying for a Bitcoin ETF since 2017 and so it’s amazing to see one finally get approved.
A Bitcoin ETF is will open up crypto to a whole new class of investors who, for whatever reason, can’t buy their own coins or invest in the Grayscale Bitcoin trust. All in all, the Bitcoin ETF is a big step forward for the cryptocurrency ecosystem. That being said, the ETF we’ve got isn’t exactly what we’ve all been hoping for. Rather than buying and holding actual Bitcoins, the new ETF is based on futures contracts. There are two key reasons why this type of futures based ETF isn’t the best solution for most investors.
Firstly, large inflows into the ETF don’t necessarily translate into higher Bitcoin prices. Since the ETF buys cash settled futures contracts, rather than Bitcoin from the spot market, there’s not a direct relationship between investment inflows and a price increase in BTC. Secondly, a futures based ETF is expensive!
According to Matt Hougan, the Chief Investment Officer at Bitwise, quote, “The all-in cost of a futures-based ETF could be in the 5% to 10% range once you take into account the annualized roll yield.” Roll yield is the cost associated with “rolling” a futures contract, an expense that wouldn’t exist with buying and holding real Bitcoins. The result? Anyone who invests in the Bitcoin ETF won’t get the same level of performance as they would from buying Bitcoin.
For example, one financial analyst ran a backtest of the ETF and the results were staggering. According to his findings, if you invested in the ETF in 2018, by now you would have lost a *quarter* of your money as compared to investing in Bitcoin! So even though a futures based Bitcoin ETF is a great first step towards growing Bitcoin’s network effect, ultimately it’s just a stepping stone. A spot based ETF that holds real BTC is what we’re all hoping for. Here’s to hoping that the SEC will approve that type of ETF sometime within the next year!