Picture: 123RF/DIMARIK16
Picture: 123RF/DIMARIK16

The first bitcoin-linked exchange traded fund in the US, the ProShares Bitcoin Strategy exchange traded fund (ETF), saw strong investor demand during its trading debut, marking a watershed moment for the crypto industry. 

The fund —  trading under the ticker BITO — rose as much as 5.4% to $42.15 before paring gains and turning negative at one point. Still, more than 18-million shares worth roughly $740m changed hands by midday in New York, according to data compiled by Bloomberg. While comparisons are difficult because some funds are pre-funded, that volume makes it easily one of the busiest ETF debuts ever seen. Because of the way the fund settles trades, net flows into or out of the product probably won’t be known until overnight on Wednesday.

Meanwhile, bitcoin made a run at its record high. It gained as much as 3.4% to trade near $63,475, slightly below its April all-time high of just under $65,000. BITO was up about 1.56%. 

“From our conversations with market participants, I think it’s related to the growing belief as the trading day goes on that this is going to be considered a successful launch,” said Stephane Ouellette, CEO and co-founder of FRNT Financial, a crypto-focused capital-markets platform.

“It looks quite likely the product will see more volume than any other ETF launch in history — not there yet though — and given the amount of avenues retail investors already have to participate in BTC, clearly the US-based ETFs are nonetheless satisfying some kind of latent, even if niche, demand,” said Ouellette.

A bitcoin ETF has been long-awaited by both the crypto community and investors on Wall Street, many of whom have argued for years that approval by regulators would open up digital currencies to more mainstream investors. The ProShares fund is based on futures contracts and was filed under mutual fund rules that SEC chair Gary Gensler has said provide “significant investor protections”.

“We are really excited to bring BITO, the first bitcoin-linked ETF, to investors as an important opportunity for them conveniently to invest in Bitcoin in their regular brokerage account,” Simeon Hyman, global investment strategist at ProShares, said on Bloomberg TV. “This is going to allow many people who have been waiting for an easy way to do this and a robust way to do this to now be involved and have it in their portfolios.”

Retail investors rushed to buy the ETF on Tuesday. BITO was one of the most-bought asset on Fidelity’s platform with more than 7,500 buy orders coming from customers.

“It’s an incredibly bullish week — there’s been really positive sentiment around the ETF in particular,” said Sam Bankman-Fried, CEO at FTX, one of the largest crypto exchanges. 

It’s long been assumed that whoever received approval first could stand to reap the greatest benefits — including industry recognition, as well as potentially attracting huge amounts of cash. Some analysts are already bullish on BITO’s prospects. The futures-based bitcoin ETF could attract more than $50bn in inflows in its first year given the hype around it, according to noted bitcoin bull Tom Lee, co-founder of Fundstrat Global Advisors.

There are other applications for futures-based bitcoin ETFs in the queue. Analysts are anticipating launches from issuers such as Valkyrie, whose Bitcoin Strategy exchange-traded fund could trade under the ticker BTFD. 

Meanwhile, Grayscale Investments and the New York Stock Exchange filed to convert the world’s biggest bitcoin fund, ticker GBTC, into an ETF, appealing to regulators for approval just as its wildly popular vehicle is beset with competition. 

Market-watchers have a few measuring sticks with which to gauge BITO’s initial reception. The SPDR Gold Shares fund, ticker GLD, had the fastest-ever climb to $1bn in assets under management, reaching the landmark in just three days, according to Bloomberg Intelligence. More recently, the VanEck Social Sentiment fund, ticker BUZZ, saw more than $400m worth of shares traded on its debut earlier in 2021, one of the highest amounts ever for an ETF on its first day.  

“This is likely going to be the biggest launch of all time,” said James Seyffart at Bloomberg Intelligence. BITO is bound to pass VanEck’s BUZZ launch, he said.

Seyffart added that the top launch and all launches above BUZZ’s had backing from pre-seeded institutions, which had been lined up to invest into the funds for hundreds of millions of dollars. “It’s likely not going to pass some of these funds that traded over a billion in the first day due to hundreds of millions from an institution or two that was lined up before the launch. But it should pass BUZZ for what we tend to refer to as an ‘organic’ launch,” he said. 

Bloomberg News reported last week that the US Securities and Exchange Commission wasn’t going to stand in the way of the launch of a futures-backed Bitcoin fund.  

Gensler has been viewed as being more open-minded towards crypto than his predecessor, Jay Clayton was. Observers cite Gensler’s previous interest in the crypto world — he once taught a class at MIT’s Sloan School of Management called “Blockchain and Money”. And the chair had signalled that regulators may be more open to a bitcoin ETF if it were based around futures rather than the cryptocurrency itself. 

Bloomberg News. More stories like this are available on bloomberg.com

Picture: BLOOMBERG/PAUL YEUNG
Picture: BLOOMBERG/PAUL YEUNG
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