Will you open a crypto trading account? ProShares announced Monday it plans to launch the country's first exchange-traded fund linked to Bitcoin. The ETF with the ticker symbol BITO is expected to start trading on Tuesday, barring any objection from regulators.
ProShares CEO Michael Sapir compared the launch of a crypto-linked ETF with the initial share ETF launched in 1993 and the 2002 rollout of the first exchange options ETF. The U.S. market for ETFs has grown to more than $5.4 trillion and they are owned by roughly 9% of all the nation's households, according to the Investment Company Institute.
Across the crypto industry, meanwhile, thousands of digital currencies have exploded into a nearly $2.5 trillion industry after the creation of thousands of currencies. Bitcoin is the largest of them all with a total value of almost $1.2 trillion. The Bitcoin - Linked ETF is a bit complicated.
Instead, it will focus on Bitcoin, a market that is complicated by U.S. regulators and can be too complicated in its own right. That means investors need to be particularly aware of what they re purchasing, and how it s likely to perform.
A Bitcoin ETF would give investors a new way to get involved in the fast growing field of cryptocurrency. Bitcoin s price has more than doubled this year, and a growing number of investors see it as a way to offer their portfolios some protection.
The hope is that Bitcoin s price will move in a way that s not as tied to expectations for the economy as stocks and other investment are. If it does, it could help support portfolios when everything else is falling or inflation is high. If the U.S. stock market was not in a perfect position at the beginning of the pandemic in 2020, Bitcoin lost roughly as much as bitcoin did, when it fell nearly 34% at that time to the beginning.
Some investors may not want to open a new trading account for cryptocurrencies. Instead, they can buy the ETF through old-school brokerage accounts they may already be using to invest in stocks or their IRA.
An exchange traded fund allows investors to buy a whole basket of investments easily. Some of the most popular ETFs track things like the S&P 500 index of big U.S. stocks, the price of gold or high-yield bond indexes.
Unlike with a traditional mutual fund which prices only once per day, investors can buy or sell an ETF throughout the trading day. That s particularly important for cryptocurrencies whose prices can fluctuate sharply from minute to minute, let alone day to day.
No, and this is one of the most important distinctions. The fund will invest in Bitcoin futures, which are essentially bets on where Bitcoin s price will go in each of the months ahead.
The Bitcoin futures market is approved by the Commodity Futures Trading Commission, which can offer investors more protection. It does not also track the price of Bitcoin completely, however.
This is not a replacement for owning Bitcoin directly, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA.
The ETF is less than ideal for a Bitcoin believer who wants to invest it instead of real Bitcoins, Rosenbluth said.
Instead of a buy and hold investor, he said it is more likely to be popular with short-term traders that want to make money off its volatility, at least initially. That s certainly plenty of opportunity for this.
In the span of roughly three months earlier this year, Bitcoin more than halved from more than $64,900 to less than 30,000. Since that low point in July, it's surged back to nearly $61,800.
BITO will have an expense ratio of 0.95%. That means $95 of every $10,000 invested in the fund will go towards paying its annual operating expenses.
Such fees could be a hard sell for Bitcoin fans, many of whom see cryptocurrencies as a way to erase middlemen from industries.
Is there an emerging ETF from the United Kingdom of China?
No, several other fund companies have their own applications for ETFs linked to Bitcoin futures. Some may try to separate themselves from others by charging lower fees.
Beyond Bitcoin, the ETFs will help create a bigger ecosystem in the financial world around it, said Ben Johnson, director of global research at Morningstar.
With a Bitcoin-linked ETF, skeptical investors will have something they can sell short. In such a trade, they can bet on the ETF s price to fall by selling and borrowing a share hoping to buy it back later at a lower price. The ETFs could also allow trading options around them.
The money made on all this trading activity is going to dwarf the money made just by collecting fees for those products, Johnson said.