Teun Kerkhof - 20 October 2021

Bitcoin ETF Has Been Approved, What’s Next?

In the financial world,especially within the crypto industry, Bitcoin ETFs have been the talk of the town. The ETFs are much anticipated products and are viewed by many as the next step for cryptocurrencies in terms of legitimacy. The launch of such financial products in the United States would recognize the value of digital assets, like Bitcoin and Ethereum. Currently, there is no easy and legal way for large investors and companies in the United States to expose themselves and invest in digital assets, like Bitcoin. However, an ETF would make this possible. 

First Bitcoin ETF

Yesterday was a historic day, as the first Bitcoin ETF was launched on the NYSE Arca by ProShares. In its first day of trading the product had a volume of almost $1bln. This places the ProShares Bitcoin ETF on the number 2 spot of historic ETFs with record opening day volumes. 

It is important to note here that the ProShares Bitcoin ETF is a futures-based ETF. This means that the ETF tracks the CME Bitcoin futures that are speculating on the future price of Bitcoin. Investors should understand that the price and performance of ProShares ETF shares differ from the price and performance of Bitcoin. You can find a great explanation on futures-based ETFs here

Other Bitcoin ETFs

Besides futures-based ETFs, there are also spot ETFs (find more about currency ETFs here). These give investors direct exposure to the underlying asset. There are a few companies who have filed an application to launch a spot Bitcoin ETF, the biggest fish being Grayscale. This is a digital asset management company and a household name in the crypto industry. Grayscale has over $50bln in assets under management (AUM) across various crypto trusts. As of writing the company holds over 650.000 Bitcoin in their Bitcoin Trust. This is 3.117% of the total supply of Bitcoin. Recently, the company unveiled through Twitter that they had submitted a filing to the SEC to transform their Bitcoin Trust into a Bitcoin spot ETF. This happened on the day the ProShares Bitcoin ETF went live. 

As a whole,the transformation from Trust to ETF would be very beneficial for Grayscale and crypto. Grayscale benefits immensely, as they open up to a lot more investors. The actual investors themselves can have direct exposure to Bitcoin as opposed to the futures-based ETFs on the market right now. 

As of writing the Grayscale Bitcoin Trust is trading at a 16% discount to NAV. This means that the fund is traded below the underlying net asset value. Investors can actually buy cheaper Bitcoin than on the open market. The current discount poses an opportunity for investors anticipating the conversion from Trust to ETF as it gives them exposure to the price of Bitcoin and upon conversion discounted physical Bitcoin. 

Upcoming deadlines

There are lots of important deadlines to keep an eye on in the upcoming months. In total, the SEC has to respond to eight different ETF filings by companies. The ProShares Bitcoin ETF was approved on October 18th . For the Invesco Bitcoin ETF, the important date was on October 19. . However, right before the deadline, Invesco abandoned their plans to launch an ETF. Other companies that are awaiting approval by the SEC are VanEck, Valkyrie, Galaxy, AdvisorShares, and Grayscale among others.

Conclusion

The coming of ETFs to crypto is a clear sign that the crypto markets have matured significantly and are now more adopted by the traditional finance world. ETFs bring some legitimacy to crypto currencies. For a long time now they have been downplayed by a lot of notable people as a bubble, such as Donald Trump did in 2020 who said ‘crypto is fake money’.

ETFs will open up the doors to a lot of large investors and companies to gain exposure to Bitcoin. For now it is only limited to a futures-based ETF, but we expect that ETFs will make their way to a spot in the market rather soon. A hopeful sign that will happen this year is the filing by Grayscale to turn their Trust into an ETF. . A spot that ETF gives investors direct exposure to Bitcoin as opposed to a futures-based ETF.