Watershed or expedient?

But others, such as Arca CEO Rein Steinberg, have “complex feelings” about these events. Although he is very happy that the long-awaited crypto investment tool has finally received regulatory approval-ending eight years of futile work by the U.S. fund issuer-he has some doubts about the product that was finally approved by the U.S. Securities and Exchange Commission, especially Is that it is based on futures and does not track the price of Bitcoin (Bitcoin) directly.

“We believe that futures ETFs are not a good way to gain exposure to Bitcoin,” he said in a statement. Blog, Added: “Futures-based ETFs are suitable for short-term trading, but there are a large number of tracking errors in the long-term, which is what most investors seek in terms of Bitcoin risk exposure.”

Markus Hammer, a lawyer and principal of Hammer Execution Consulting, agreed with some others that the incident was a milestone, but he warned that “this is just a milestone and there is still a long way to go” and further informed Cointelegraph, “As an investor, if you want to do more cryptocurrencies-many people do-you prefer funds that track’physical’ Bitcoin rather than its derivatives.”

ProShares ETF bets on BTC future price fluncuation. In other words, “the product will eventually deviate from the BTC price itself, and ProShares as the issuer is just another intermediary, so it is a counterparty risk for investors.”

Futures-based ETFs and physical ETFs — do they matter?

Campbell Harvey, a professor of international business at Duke University, told Cointelegraph that many institutional investors may wait for physical Bitcoin ETFs-linked to the spot market, rather than derivatives markets-to track the actual price of cryptocurrencies. He explained that the BTC futures market is relatively small, and “purchasing pressure on futures will lead to negative’rolling returns’”, which means:

“Every time you’roll’ to the next contract, you need to pay a premium to buy futures. Buying physical goods is much more straightforward, but the US Securities and Exchange Commission has not indicated that they are willing to allow this.”

In an interview with CNBC shortly after the release on October 19, SEC Chairman Gary Gensler Suggest Why the agency only allows this indirect way to the crypto space: “What you have here is a product that has been supervised by the US federal regulatory agency CFTC for four years, and it has been wrapped in things within our jurisdiction [i.e., the SEC] According to the Investment Company Act of 1940, we have the ability to include it in the scope of investor protection. ”

In other words, the new product will have two Multiple layers of regulatory protection-CFTC and SEC-protect against potential hackers, manipulators and fraudsters.

Regardless of its pedigree, the ProShares fund clearly resonated with investors-by the end of the second day of trading, it had managed assets of $1 billion, which was the first time any ETF reached this level.

Jeff Dorman, Arca’s chief investment officer, told Cointelegraph: “This is the first US ETF designed to track Bitcoin. This certainly means something, but it’s definitely not a product that the market wants, and it’s not a financial adviser willing to sell. Compared with the physical support ETF, its adoption rate may be lower.”

Some, including Harvey, believe that the leading ETF provider Invesco announced on Monday Bid to issue BTC futures An Invesco spokesperson stated that ETFs-at least for now-are focused on “pursuing physical-backed digital asset ETFs.” Tell Bloomberg.

Are pension funds pouring in?

When asked about pension funds, which are a cautious but large subgroup in the firmament of institutional investors, Doman told Cointelegraph that “pension funds have been conducting due diligence on crypto for years,” but Bitcoin futures ETFs are unlikely “Shake the needle”” this investor class. “But if ETFs lead to greater market capitalization and increased liquidity, so the absolute growth of the market size will make it easier for pension funds to make comfortable investments. “

“ProShares’ Bitcoin futures ETF will definitely enhance the image of Bitcoin in the institutional investment community,” Ben Caselin, head of research and strategy at cryptocurrency exchange AAX, told Cointelegraph, which may make it easier for pension funds to gain exposure to cryptocurrencies. “However, there must be a wider variety of different Bitcoin ETFs, including physical support, so that large participants can enter the market with the support of the ETF,” Kesling said.

related: Cryptocurrency and pension funds: like oil and water, or maybe not?

Nigel Green, CEO of financial solutions company deVere Group, stated in an email statement to subscribers that ETFs based on ProShares futures will “inevitably bring more and more active market participants, including those who use Pension funds, retirement and brokerage accounts”, but Dorman said, “ETF is not really designed for institutional investors-it is more like a retail product.”

Dorman explained that any institutional investor who wants to access Bitcoin already has a different way to gain this exposure, “so this won’t change much. I do believe that we will see more institutions adopt all Digital assets, but the institutional adoption rate of Bitcoin may be lower than other digital assets that are easier to understand and value. We have seen new portals become more and more popular-NFT, games, DeFi.”

Will it attract individual users?

What about retail investors—will futures-based Bitcoin ETFs be attractive, or are they too technical?

Caselin said: “There are a lot of retail stock traders who use trading apps who are reluctant to buy bitcoins on the spot market, let alone withdraw these funds into private wallets,” he added, “in certain jurisdictions. , Retail traders may not be allowed to trade on centralized encrypted exchanges. ETFs have opened up new ways to understand Bitcoin’s price movements.”

On the other hand, Banz Capital CEO John Iadeluca told Cointelegraph that the “separately priced, complex underlying derivatives” of the ProShares ETF may “add a layer of complexity for those who have always wanted to buy Bitcoin easily and securely”. Harvey added: “Retail investors can easily access cryptocurrencies by using existing brokers such as Coinbase or Robinhood. They can bypass ETFs and avoid futures.”

Nonetheless, “ETF is a traditional financial product that can be publicly traded on an exchange like a stock,” Hammer points out. “This will definitely attract immature retail customers to participate in encryption through their existing trading accounts and familiar (centralized) banking systems.” They don’t have to deal with hot/cold storage decisions, encryption exchanges, fraud, tax issues, etc. “Convenience works its magic here.”

Is there an Ethereum ETF?

Of course, Bitcoin is not the only star in the crypto galaxy. In fact, its dominance has weakened in the past year, and some people even talk about the final BTC-ETH “flip”, in which Ether (Ethereum)’S total market value exceeds Bitcoin. Can’t help but ask: How far is the SEC-approved Ethereum ETF from us?

“Given that Ethereum is the second largest cryptocurrency in the world, the possibility of an Ethereum ETF is very high,” Jay Hao, CEO of the cryptocurrency exchange OKEx told Cointelegraph, “but it still takes time to mature.”

“Ethereum has always followed Bitcoin in terms of price movements and attention,” Kesling said. “However, unlike Bitcoin, Ethereum is not suitable as a legal tender. In addition, Ethereum is still in the experimental stage. Although the project is doing very well, there are still problems with the transition to proof of stake. [consensus protocol] Will look like. ” Currently:

“Ethereum is more about platforms than assets. I won’t see the emergence of Ethereum ETFs soon until the field becomes more mature.”

Yadeluka disagreed. “I think the Ethereum futures ETF is now more likely to be approved”, especially because investment products based on Ethereum pay close attention to the development of institutional products of Bitcoin in the mainstream market. “However, this may take some time.”

The key turning point?

All in all, what is the position of this week’s events on the scale of cryptographic historical significance? Is this really a “watershed” moment when everything changes?

“This is undoubtedly an important milestone in the continued development of the encryption industry,” Hao told Cointelegraph. More attention and participation from institutional investors will only help mainstream acceptance. “As the adoption rate of Bitcoin and cryptocurrencies grows, the industry will continue to thrive.”

However, Harvey warned against succumbing to the hype. “In general, the entire space is hampered by regulatory uncertainty and requires additional guidance,” he told Cointelegraph, and Hammer added, “The market is looking for physical ETFs, not crypto futures ETFs.” He also Agree that the market still lacks regulatory clarity:

“As long as there is no unified encryption classification law, the responsibilities between regulatory agencies are not clearly assigned, and there is no legislative framework to regulate general encryption, especially DeFi and stablecoins, then nothing will be obtained.”

ProShares’ breakthrough in ETF barriers is still a bittersweet moment for Dorman. On the one hand, “I am very happy to see the achievement of another milestone”, but it is also disappointing because “This is another defective product with high fees and serious tracking errors. It is only traded on exchanges carefully selected by the SEC. .”

For the same reason, people do not want to ignore the forest because of the trees. This week’s event can be said to be a kind of test—”See if mainstream investors are ready to incorporate cryptocurrencies into their portfolios along with other assets such as stocks and bonds,” Green said. “From the reaction point of view, they seem to be like this.”

This week, with the launch of the first Bitcoin exchange-traded fund (ETF) approved by the US Securities and Exchange Commission, New York caused great excitement. ProShares Bitcoin Strategy ETF (BITO) made its debut on the New York Stock Exchange and became the second-largest open day fund in terms of trading volume on record. Some of them Call up This is “a watershed moment in the encryption industry.”