A bitcoin-based exchange-traded fund (ETF) has finally made its way to the middle of North America. The United States has long awaited the introduction of a bitcoin ETF after many years have gone by of companies submitting applications only to have them rejected ungraciously.
A Bitcoin ETF Has Made Its Way to the U.S.
This new product is being offered by Pro Shares and is being traded on the New York Stock Exchange (NYSE). It trades under the ticker BITO, and investors can potentially buy their way into the bitcoin market without experiencing the risks they’d encounter when directly purchasing crypto on a digital exchange or similar platform.
Since 2017, many businesses and financial enterprises have worked tirelessly to get greenlights on their bitcoin ETF proposals. Companies such as Van Eck and Bitwise – arguably two of the most famous and prominent ones – have strived to be the first ones at the table of this developing market, but the journey has been wracked with hardship and failure, with firms like Van Eck ultimately submitting as many as three different applications to the Securities and Exchange Commission (SEC).
The first two were cut out almost immediately, while the third was under consideration for so long that Van Eck wound up pulling the plug on the application itself. What a nasty way to go out…
Now, the ETF that everyone has been waiting for has finally and truly arrived. It’s good news for many, but for others, the product needs to be taken with a grain of salt. Mike Hunsberger – a financial planner – stated in a recent interview:
Consumers should definitely approach it with some skepticism.
One of the big reasons for this skepticism is that the ETF does not hold, nor does it trade directly through bitcoin. Rather, it is based on bitcoin futures, which many analysts have issues with considering they are considered inferior products. Also, the fact that the product is based on bitcoin futures technology means it may be regulated under an old 1940s rule that applies primarily to mutual funds.
Many analysts have argued that this law should be amended to fit the changing products the financial space is looking to offer, though Gary Gensler – the current head of the SEC – is arguably showing himself to be reluctant and slow when it comes to implementing the necessary adaptations.
Dana J. Menard – a CFP and founder of Twin Cities Wealth Strategies in Minneapolis, Minnesota – explained in a statement:
Futures contracts are derivatives of bitcoin and are not directly backed by physical bitcoin.
A Few Issues with the Product
Hunsberger is particularly against a futures-backed ETF given that it allegedly does not allow investors full earning capacity. For example, he says that if the price of bitcoin rises by 30 percent, the ETF is only likely to provide investors with 20 percent returns. He says:
Futures ETFs hold contracts that periodically expire and must be repurchased.