First Bitcoin exchange exchange exchanges to launch next week

The first exchange traded bitcoins of the US are on track to launch in the next week, marking the culmination of an eight-year struggle to win approval from the Securities and Exchange Commission.

It is believed that Invesco Bitcoin strategy ETF will be given the green light to begin trading on Tuesday and the ProShares Bitcoin Strategy ETF a day later. The approvals are likely to open the floodgates to a stream of similar products, potentially fuelling another leg up in the price of the cryptocurrency.

All ETFs will be based on bitcoin futures contracts, rather than the spot price, with the SEC known to be concerned about a potential lack of liquidity and the risk of price manipulation on spot exchanges.

As recently as last week, Gary Gensler, SEC chair, described crypto finance as the Wild West or the old world of buyer beware that existed before securities laws were enacted adding that it is rife with fraud, scams and abuse However, Gensler has hinted that he is comfortable trading on regulated futures venues such as the Chicago Mercantile Exchange.

Overnight the SEC s Office of Investor Education and Advocacy tweeted: Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits. The likely approvals come eight years after the Winklevoss twins applied to launch the first Bitcoin ETF in the US, at a time when bitcoin traded nearer $1,000 than the $59,000 it currently sits at.

A swath of proposed funds has bitten the dust since, with jurisdictions such as Sweden, Switzerland, Jersey, Germany and Canada that have overtook crypto exchange traded products.

Almost 50 crypto ETPs are being setup and running worldwide with combined assets of $12 bn, according to data from TrackInsight. This includes 16 bitcoin ETPs, including inverse vehicles that go up in price when Bitcoin falls and vice versa.

In the same month, the weekly net flows into dedicated cryptocurrency funds have hit a four-year high of $2.2.5 bn, according to data provider EPFR.

While the SEC believes bitcoin futures are more suited for retail investors than trading in the underlying spot market, they are unlikely to yield the same returns.

The bitcoin futures market typically, though not always, trades with a modestly upward sloping curve known as Contango. This means that, more often than not, a fund will incur a loss when it rolls the front-month contract into a longer-dated one.

Matt Hougan, Chief Investment Officer of Bitwise Invest, which has filed to launch a spot bitcoin ETF estimated the cost of this roll yield at 5 to 10 per cent a year.

Dave Abner, global business development head of the Gemini Crypto Exchange, said that while bitcoin futures ETFs are said to offer more protection for investors, this approach could unfortunately create another set of returns that don t equal reality for investors seeking investment exposure to bitcoin futures