Written by: Kealan Bane
ProShares Bitcoin Strategy ETF (BITO), the first and newly founded U.S Bitcoin-linked ETF, debuted this morning. The ETF closed up +$1.94 or +4.85% on the first day of public trading access. BITO generated around $1B of trading volume, putting this near the top for the biggest ETF launch in history.
Perspective of $1B
$1,000,000,000 or $2,564,102 every minute
One very interesting and important thing to note about BITO is that it is actually not directly invested in Bitcoin (BTC) its self, instead "the fund seeks to provide capital appreciation primarily through managed exposure to Bitcoins futures contracts," says ProShares. ProShares also says that BITO is, "...the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid, and transparent way." This ETF has the primary focus of putting the returns of Bitcoin into more retail investors hands.
For the heavy cryptocurrency investors and advocates, this is not ideal for a few things. The main issue being that the fund will not resemble the exact, although close, price action of the cryptocurrency due to the fact that the fund holds and tracks the prices of the futures contracts and not the actual price of BTC. However on the flip side, this ETF can actually be quite attractive for the majority of retail investors due to the simple fact that this fund provides convenient and liquid access to the world of cryptocurrency and more importantly, it is managed by professionals in this field. The expense ratio on BITO is 0.95%, again not ideal, but a price retail investors are willing to pay, as we saw with $1B of volume.
Note: The price action correlation between BITO and BTC today had relatively small margin
Today, BTC is currently up +$2,655.09 or +4.35%, pushing the currency into unseen territory. BTC is currently trading at a record level of $63,825.08 per "coin." This price movement is produced by the purchase of direct Bitcoin. The interesting thing seen here is that BITO and BTC are both up around 5% on the day but Bitcoin is up due to the direct purchase of Bitcoin and BITO is up due to the direct purchase of the ETF, or in other terms, the indirect purchase of BTC futures contracts. I can safely say that the majority of the people investing in either of these plays value the potential Bitcoin holds and are looking to make a ROI. One of the most interesting things that could occur between these two holding is BITO being down by a significant amount while BTC is up in the same day. The reason this can be so interesting is because this would show that by the BITO ETF being significantly red, people are essential selling their holdings in Bitcoin futures contracts and losing hope for the potential they believe Bitcoin holds, while on the other hand, by Bitcoin its self being significantly green, this shows that people are directly buying Bitcoin and potentially reinstalling or upping their belief in the potential Bitcoin holds. For this to happen simultaneously, would be quite interesting and would call for deeper research to answer the question we all ask. Why?
The development of this Bitcoin focused ETF is arguably one of the most interesting and innovative funds to be produced in the financial markets sector. The development of this fund can hold potential insight into how some of the high level, powerful funds feel about such a controversial and interesting topic, Bitcoin. It will be very interesting to see how this fund performs in the long run, and even more interesting to watch the price action margins between BITO and BTC.