William John Market Report 17-11-21
In October, the first exchange-traded fund linked to a cryptocurrency was launched on the New York Stock Exchange. How has it performed and what is the future for crypto ETFs? William John discusses.
ETFs, Crypto, Cryptocurrency, Capital, Markets, AlternativeInvestments, WilliamJohn

William John Market Report 17-11-21

William John Market Report 17-11-21

Category: Reports

In October, the first Bitcoin-backed exchange traded fund (ETF) in the United States was launched on the New York Stock Exchange. The Bitcoin Strategy ETF by ProShares Trust made its debut on 20/10. Looking at its performance since launch, its price has fluctuated and it is yet to build on its opening day price: 

Source: William John Analytics, Yahoo Finance

Exchange-traded funds, a type of financial security that tracks an index, sector, commodity, or other asset, and can be bought or sold like a typical stock or bond on an exchange, have surged in popularity given the bullish market for traditional indexes like the S&P 500 and Dow Jones industrial average – which have rallied to record highs (excusing the first months of the pandemic) over the past decade or so. Subsequently, exchange-traded funds nicknamed SPDR’s (after the S&P’s SPY symbol) have performed exceptionally well.   

With the emergence and perpetual extension of bullish rallies coming into play in cryptocurrency markets, it is no surprise to see the demand for crypto-based ETFs skyrocket as institutional investors & retail investors flood capital into the crypto markets. With the inception of the equity ETF in 1993, the first fixed-income ETF in 2002 and the first gold ETF in 2004, many view the first cryptocurrency ETF in 2021 as a hallmark of the asset class’s establishment alongside the traditional asset classes aforementioned. 

Although many have campaigned for the establishment of crypto-backed ETFs for years, the Securities Exchange Commission has rebutted proposals on the grounds that cryptocurrencies are one, extremely volatile (potentially causing liquidity issues in the case of margin calls as well as the general risk of substantial losses) and second, traded on unregulated exchanges such as Coinbase. 

The Bitcoin Strategy ETF by ProShares was approved as it does not actually trade bitcoin but rather futures contracts betting on the price of Bitcoin. This move is seen to “steady the ship” by the Securities Exchange Commission, as futures contracts for Bitcoin are traded on a regulated exchange – the CME group (one of the world’s “leading and most diverse derivatives marketplace”, according to its website description). 

Whilst this ETF has stamped a new chapter in the financial markets and for cryptocurrency, a long path lies ahead for exchange traded funds that seek to list whilst simultaneously engaging in spot-traded speculation of crypto: currencies, tokens, NFTs and more. 

Further regulation, governance and overwatch is needed to transform one of the hottest sectors over the past few years into a truly institutional asset class. Nevertheless, the ability for funds to raise capital from the general public to invest in cryptocurrency assets certainly elevates its offering to institutional, professional investors and retail investors alike.  

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.