The first bitcoin-ETF will begin trading in the US. What it means for the market

On October 19, the Bitcoin Strategy ETF from ProShares became available to investors on the New York Stock Exchange. Why this could be considered a pass to the digital asset market for large institutional players

Bitcoin

The first U.S. exchange-traded fund (ETF) based on Chicago Mercantile Exchange (CME Group) bitcoin futures will begin trading on October 19 on the New York Stock Exchange (NYSE). ProShares’ Bitcoin Strategy ETF has received SEC approval and will trade under the ticker BITO.

Various companies, including ARK Investment, Fidelity Investment, VanEck, One River and others, have been trying to get SEC approval to launch a bitcoin ETF since 2013. Until now, the regulator had rejected all applications to launch exchange-traded funds based on cryptocurrency.

What is an ETF

ETFs (exchange traded funds) are investment funds that form portfolios of assets and issue their own shares, where each security is linked to a certain portion of the fund’s assets. In this way, ETFs allow the acquisition of an asset without actually owning it.

In the case of ProShares Bitcoin Strategy ETF, the fund will be tied to bitcoin futures, which have been trading on the Chicago Mercantile Exchange since 2017. ProShares website warns potential investors that the price of bitcoin futures may differ from the value of the first cryptocurrency on the spot markets.

Once the Bitcoin Strategy ETF begins trading on the NYSE, institutional and retail investors will be able to access bitcoin directly through a regular brokerage account, Binance Eastern Europe director Gleb Kostarev explained. According to him, investors wishing to purchase the first cryptocurrency will not need to use the functionality of cryptocurrency exchanges and store digital assets themselves.

Market Perspective

The launch of the first bitcoin-ETF in the U.S. is important primarily because it is the next fully regulated instrument that allows you to invest in cryptocurrencies, said Mikhail Karkhalev, a financial analyst at the crypto exchange Currency.com. In his opinion, against the background of tough bans on cryptocurrencies in China, the more loyal position of the US gives the industry an opportunity to develop and grow further, despite the fact that as a country there is still no legislation regulating the crypto market.

Harsh measures against cryptocurrencies began to be introduced in China at the end of May this year, following a call by Vice Premier Liu He of the State Council of China to tighten regulation of digital assets. Local provincial authorities began to ban cryptocurrency mining, and crypto-businesses began to leave the country. In September, the PRC authorities completely banned cryptocurrency transactions, equating them to illegal financial activities.

The launch of the bitcoin-ETF is one of the most important milestones of 2021, Kostarev believes. He believes there will be a large influx of institutional investors into the cryptocurrency market in the near future. Many investors, who are often very distant from digital assets, have been quite actively interested in bitcoin and the cryptocurrency market in general over the past year, explained the director of Binance Eastern Europe. According to him, many such investors were stopped from investing in cryptocurrency by the industry’s lack of regulation, low level of trust in the industry, and low awareness of digital assets.

“The barrier that exists between potential investors and cryptocurrencies will be overcome thanks to the bitcoin-ETF”, Kostarev noted.

The start of bitcoin-ETF trading in the U.S. effectively means regulatory acceptance of cryptocurrency and permission for large institutional investors to enter the crypto market, Broker Data Analysis Manager Yuri Mazur stressed. He reminded that Tesla was one of the first public companies to invest directly in bitcoin, but this strategy does not suit all organizations.

How investors can use bitcoin-ETFs

Bitcoin-ETF will be of interest not only to institutional investors, but also to retail investors, Mazur said. He explained that a cryptocurrency-based exchange-traded fund will be available on regular stock exchanges, making it much easier to invest in bitcoin. Mazur cited a lower entry threshold as another advantage of the bitcoin-ETF, as the cost per share of the fund will be significantly lower than the bitcoin price. According to ProShares, the Bitcoin Strategy ETF will start trading at a set price of $40.

Investors will be able to use the bitcoin ETF to diversify their portfolios, as the instrument will be less risky and volatile, Karkhalev explained. Thanks to bitcoin-ETFs, he said, investors will have less chance of running into fraudulent projects when trying to make money on the cryptocurrency.

“Perhaps the yield will not be as high as if you invested in a HYIP in Shiba Inu, but the risk of losing all the capital is significantly less”,Β Karkhalev added.

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