The first cryptocurrency exchanged fund in the US market has been launched in New York, marking the first time a cryptocurrency-linked product has appeared on a major Wall Street exchanges.
The ProShares cryptocurrency trading - strategy ETF was launched at the New York Stock Exchange after opening bell on Tuesday. While other ETFs already trade in other jurisdictions, the listing in US — the world s biggest stock market — is a key test of whether mainstream investors are willing to place cryptocurrencies alongside stocks, bonds and other traditional assets in their portfolios.
This is an important milestone for ETFs, which is joined by the first equity ETF in 1993, the first fixed income ETF in 2002 and the first gold ETF in 2004, said Michael Sapir, CEO of ProShares, which manages $65 billion in ETFs and is headquartered at Bethesda, Maryland.
Bitcoin has rallied close to the highest level it hit earlier this year, supported in part by expectations that bitcoin ETFs will pull new money into the digital asset market. The most actively traded cryptocurrency rose above $62,000 on Tuesday, having more than doubled from a low point during a summer sell-off.
Why have ETF providers been lobbying the Securities and Exchange Commission for eight years to allow these types of vehicles to trade on national stock exchanges? The top US securities regulator's however was reluctant to give the green light because of the asset class's strong volatility and broader concerns about the industry. It did not respond to a request for comment on the matter.
The ProShares bitcoin ETF holds futures contracts that track the price of bitcoin rather than purchasing digital coins outright. Gary Gensler, Chairman of the SEC, has said the commission would be more comfortable with this type of structure because futures trade on a regulated market. In crypto exchanges, a large number of expat trading platforms operate on unregulated exchanges.
Although US investors can already buy Bitcoin through private trusts, such as the $39 bn Grayscale Bitcoin Trust, or directly through crypto exchanges, Sapir said ETFs would open the market to a wider variety of investors, including those using pension funds, individual retirement accounts and brokerage accounts.
Ben Johnson, director of financial research at Morningstar, says the arrival of bitcoin ETFs opens up the investment opportunity to a larger pool of assets than ever before, including many investor nest eggs However given the asset mind-bending historical volatility, investors should approach with caution if at all he added.
ProShares rival Invesco announced late on Monday that it would not pursue a futures bitcoin ETF in the immediate near-term The group, which has partnered with Mike Novogratz s Galaxy Digital to launch a suite of crypto products, will still push ahead with plans for an ETF holding digital tokens, rather than futures that track them.
On Tuesday, Grayscale said it filed with the SEC to convert its flagship bitcoin trust into an ETF.
While futures-backed ETFs are linked to a more well-established product, investors can face losses — known as roll costs — when the fund manager shifts to a new contract after the previous one ends.
ProShares data suggest a $1,000 investment in bitcoin futures would have turned into $10,879 by September of this year compared with $11,784 for a similar investment in spot bitcoin.
Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research, said that alongside the roll costs the futures market is very rarely exactly in line with the physical security and can be notably different at times, which is why when given the choice between physical gold ETFs and futures ETFs more people chose physical Stills. There is a subset of investors who are very comfortable with ETFs to be interested in these products out of the gate, added.