How did the US’s first Bitcoin futures ETF set off a market frenzy?

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Although the stimulus effect of futures ETFs is far from being comparable to that of spot ETFs, this moment has historical significance for both the crypto world and the traditional financial world of the United States.

Original title: “[Chain De De Exclusive] Release to create history! In-depth analysis of how this Bitcoin futures ETF set off an investment frenzy? 》
Written by: Dolji

The first day’s transaction volume reached the second highest record in history when it went online.

After 8 years of long wait, the first BTC ETF in the United States finally went online.

At 9:30 on October 19, US Eastern Time, ProShares Bitcoin Futures ETF was officially listed on the NYSE High Growth Market (NYSE Arca) under the symbol BITO. The opening price on the first day was US$40.89, and the 20-minute trading volume was as high as US$280 million, making it one of the top 15 issuances on the first day of history. The final closing price on the first day was US$41.94, an increase of 4.9% from the opening net asset value.

According to statistics from Bloomberg, the ETF changed hands more than 24 million units, and the total trading volume on the first day was close to US$1 billion. This scale was second only to BlackRock’s carbon neutral ETF, and became the second highest trading volume on the first day in history.

Affected by market sentiment, the price of Bitcoin is approaching a record high. As of press time, Bitcoin is quoting $63869.5.

ProShares BTC futures ETF is a Bitcoin futures contract registered with the US Commodity Futures Trading Commission (CFTC) and traded through the Chicago Mercantile Exchange (CME). It charges a 0.95% investment value management fee per year.

This BTC futures ETF does not directly invest in Bitcoin spot. The index tracked by the transaction is anchored to CME’s recent-month Bitcoin futures. Ordinary investors only need to buy and sell stocks in fiat currency in the securities market, and ProShares will use swap contracts. Sell ​​recent contracts, buy forward contracts, track bitcoin futures contract prices and indices, and obtain solid capital appreciation through refined management of contract exposures.

In the traditional financial trading market in the United States, ETFs are one of the most important forms of trading.

When a commodity appears in the form of an ETF, it means that its compliance and maturity have been highly recognized by the market.

ETFs carry out asset securitization in the form of physical guarantees, and investors holding fund shares are equivalent to indirectly holding the exposure of the target. The trading volume of ETFs can account for more than 30% of the total trading volume of the entire US exchange.

The launch of the BTC ETF means that the closed door to cryptocurrency is slowly opening. Investors can indirectly hold the target exposure by purchasing fund shares, eliminating the complicated transaction process of purchasing Crypto assets and reducing the cost of investing in crypto assets. The threshold also provides investors with safer trading channels and access to gold.

Although the stimulus effect of futures ETFs is far from being comparable to that of spot ETFs, this moment has historical significance for both the crypto world and the traditional financial world of the United States.

Why did you choose ProShares Bitcoin Futures ETF to create a historical precedent?

As the world’s financial center, the United States has always had strict regulatory policies on Bitcoin, after 8 years of long-distance running. One BTC ETF application after another was rejected. Why did the ProShares Bitcoin futures ETF become the first futures ETF approved?

First of all, whether in terms of compliance or ease of supervision, the first BTC ETF approved is definitely a futures ETF.

Previously, in August of this year, it was because Gary Gensler publicly expressed his support for Bitcoin futures ETFs based on CME trading. Such obvious conversations triggered a wave of Bitcoin futures ETF applications.

On the day that the ProShares futures ETF was listed, SEC Chairman Gary Gensler said in an interview with CNBC: Bitcoin futures has spent 4 years of supervision under the US Futures Trading Commission and listed on the CME, so we have the ability to include it in Investor protection, and Bitcoin is still a highly speculative asset.

ProShares’ Bitcoin futures ETF is traded on the CME in the previous month, and its policy is in compliance with the Investment Company Act of 1940 to provide investor protection measures. The trading venue CME is the world’s largest derivatives exchange, which is in line with the SEC’s “can Provide important investor protection” to circumvent the SEC’s concerns about the risk of manipulating the crypto market.

From the issuer’s background, ProShares belongs to the ProFunds Group, a professional exchange-traded product provider, and it is also one of the largest ETF issuers in the United States. ProShares has always focused on being at the forefront of the innovative ETF market, has rich experience in risk management and investment strategies, and is an established and stable fund company.

With product compliance and excellent qualifications, ProShares has naturally become the most suitable candidate for the first ETF.

What is the difference between ProShares and past futures ETFs and spot ETFs?

So, what is the difference between ProShares’ ETF and previous ETFs?

1. Security . In the eyes of the SEC , the security of the regulated BTC futures ETF is significantly higher than that of the BTC spot ETF. The BTC futures ETF does not need to invest directly in the Bitcoin market. The SEC is concerned that the current crypto market cannot meet the liquidity needs of the fund well, and the custody of assets is not similar to the Bitcoin spot secondary market. This is a complete second-level platform for market maker seats and clearing systems before and after the market.

Therefore, at this level, ProShares’ CME-based ETF security and compliance are more in line with the SEC’s requirements for investment security.

2. With reference to the trading method and the subject matter, the futures ETF will continuously track the subject matter price for the delivery of the recent month bitcoin futures contract, and roll position adjustment. As prices fluctuate, premiums and discounts continue to be arbitrage. ProShares’ strategic ETF value targets refer to the CME Bitcoin reference exchange rate. BTC futures ETFs may have price anchoring offset problems, and the premiums and discounts of financial products are not completely related to spot prices.

The BTC spot ETF uses real gold and silver to buy bitcoins and create corresponding stocks for trading. The value of the product depends on the investment target and can track the fluctuations of bitcoin prices.

It should also be noted that since futures ETFs require frequent trading and mobilization of positions, the high turnover rate is not suitable for long-term holding.

8 years of long-distance running, the tortuous road of BTC ETF application

For the crypto world, the BTC ETF application road is long and tortuous. In the past 8 years, fund companies keen on crypto assets have been committed to the smooth passage of the BTC ETF. Since the Winklevoss brothers first submitted a BTC ETF application to the SEC in 2013, the SEC has successively rejected more than a dozen BTC ETF applications from fund companies, including well-known companies such as Grayscale, ProShares, and Bitwise.

In July 2013, the Winklevoss brothers submitted the first Bitcoin ETF application in the United States: Winklevoss Bitcoin Trust. In the following four years, they have made various efforts to promote the BTC ETF through changes in trading venues and trading rules. However, In the end, it was still rejected by the SEC for fear of fraud and Bitcoin market manipulation.

Former SEC Chairman Jay Clayton has also repeatedly publicly accused the digital currency trading platform of not having measures to prevent market manipulation rules and supervision.

On July 12, 2016, the blockchain technology company SolodX submitted a BTC ETF application, which was eventually rejected by the SEC.

On January 20, 2017, Grayscale submitted a Bitcoin Investment Trust requesting listing on the New York Stock Exchange. On July 11, 2017, Grayscale finally withdrew the application.

On September 27, 2017, after the SEC rejected the Winklevoss application, the approved ProShares submitted the Bitcoin futures ETF application, which was finally rejected on August 22, 2018.

Neither Gemini’s ETF proposal based on the spot market, the derivatives market ETF proposal submitted by Direxion, GraniteShares, and Proshares, or the Bitcoin investment trust submitted by Grayscale, failed to knock on the SEC’s door.

Fund companies began to take a different approach. Some fund companies began to submit ETF baskets containing only a portion (for example, 25% of BTC assets), and a portfolio ETF containing Bitcoin and U.S. Treasury bonds, but they all ended up falling apart.

It wasn’t until Gary Gensler, the new chairman of the SEC, who was more friendly to the crypto market, came to power that the BTC ETF gradually saw the dawn.

In 2018, at the 2018 ChainDD CHAINSIGHTS Global Summit held by ChainDD in New York, United States, Gary Gensler accepted an exclusive interview with ChainDD. At that time, he said to ChainDD: the importance of regulatory policies to the development of blockchain. Before blockchain and digital currency are incorporated into the regulatory policy system, the true value of blockchain technology cannot be reflected.

Regarding the development of digital currency, Gary Gensler repeatedly mentioned the importance of supervision. Policy supervision of blockchain should belong to the field of public policy supervision. He believes that blockchain and digital currency cannot reflect blockchain before they are incorporated into the regulatory policy system. The true value of technology.

When it comes to Bitcoin ETFs that have been repeatedly postponed, Gary Gensler believes that in order to promote Bitcoin ETFs, the first step is to incorporate digital currency exchanges into the regulatory system. Bitcoin ETFs can only be implemented smoothly after investors’ rights and interests are reasonably protected.

Gary Gensler is a rational reformer. He believes that the relationship between regulation and innovation has always been complementary. He hopes to find a balance between economic development and regulatory policies, and use industry-standardized regulatory measures to help traders and investors. On the basis of protection, let technological innovation join the highway of finance.

Similarly, Gary Gensler also stated that before encrypted digital exchanges were fully regulated by policies, he did not fully trust the encrypted market.

For details, please refer to the previous article on LDD: [Interview with DDD TV] Gary Gensler, former chairman of the US CFTC: Blockchain cannot reflect its true value before it is included in supervision .

Through the exclusive interview with Liande and the voice of Gary Gensler to the outside world since taking office, it can be seen that he hopes to find a balance between technological innovation and supervision, and the BTC futures ETF has become the best entry right now.

“ETFs” on the way to issuance

In addition to spot and futures ETFs, it is actually technology-based corporate ETFs related to Bitcoin assets that are more popular with regulatory authorities. In early October, the SEC also specifically approved the “Volt Encryption Industry Revolution and Technology ETF”, code BTCR. Volt Fund is a combination of more than 30 companies involved in blockchain technology, including Tesla, Square, Coinbase and PayPal and other technology companies.

The Grayscale Trust is a model of another approach. Due to the frustration of applying for an ETF before, Grayscale turned to the Bitcoin Trust-GBTC, which built a bridge between traditional finance and the crypto world, and the pricing of stocks approached Bitcoin. Of course, Grayscale Bitcoin Trust’s long-term lock-up, inability to redeem, and high premiums still make it unable to match and replace ETFs.

With the landing of the BTC futures ETF, Grayscale also quickly followed up and responded. It has submitted a 19b-4 document to the SEC through the New York Stock Exchange High Growth Market (NYSE Arca), applying for the Grayscale Bitcoin Trust (GBTC) ) Converted to Bitcoin Spot ETF. Hope to hit the first BTC spot ETF. If the proposal is finally passed, the positions of GBTC share holders will automatically be converted into equivalent spot ETFs.

Grayscale, which has always been interested in crypto asset ETFs, also plans to convert its other 14 crypto investment products into ETFs.

Stimulated by the landing of the BTC ETF, Mike Novogratz’s Galaxy Digital and Cathie Wood’s ARK Invest also plan to apply for the launch of ProShares-like ETFs in the next few weeks.

Institutions such as Valkyrie, VanEck, Invesco, and BlockFi, which previously worked with ProShares for the first BTC ETF seat, are also eager to try.

Earlier, the SEC had announced that it would extend the application ruling time for 4 BTC ETFs by 45 days. The approval dates for these 4 ETFs: Global X Bitcoin Trust, Valkyrie XBTO Bitcoin Futures Fund, WisdomTree Bitcoin Trust and Kryptoin Bitcoin ETF have been rescheduled to the end of November And in December, combined with the postponement of rulings rather than rejections, their passing rates will also be very high.

On the desk of the SEC’s office, there are nearly 40 Bitcoin ETF application lists lying quietly, waiting for the SEC’s review.

Some market experts believe that at present, the application success rate of Bitcoin futures ETF will be very high. However, the success of futures ETFs does not necessarily mean that spot ETFs can successfully pass the SEC review. Spot ETFs may also face a long-term struggle with the SEC, fighting for it, and even another long-distance journey.

In any case, the first phase of victory in the Long March has come. For the crypto world, this is a new era. The funds from the traditional financial world introduced in the future through ETFs will help the crypto world reach a new height.

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