The latest approval by SEC to launch Crypto based ETF, is big shot in the arm, for the crypto community and will help in mainstreaming digital currency. This will help the public to participate and have exposure of the digital currency through managed ETF. will help in
ProShare is set to launch first Bitcoin based ETF. The Fund will not directly invest in Bitcoin but will provide capital appreciation by managed exposure to futures contracts of Bitcoin. Us based, ProShares offers one of the largest lineups of ETFs, and has more than $64 billion in assets. Earlier speaking at the Financial Times conference, U.S. Securities and Exchange Commission (SEC) Chairman, Gary Gensler remarks conveyed that he supported the idea of Bitcoin funds subject to sufficient safeguard for investors.
Bitcoin Futures Contracts will be Standardized contract and will be settled in cash. Future contracts will be traded on Commodity Futures Trading Commission (“CFTC”) registered commodity exchanges. These contracts are presently traded under the rules of the Chicago Mercantile Exchange (CME). The Fund will invest in cash settled, front-month bitcoin future contracts i.e., the contract with the shortest time to maturity and the value of BTC future will be determined through Chicago Mercantile Exchange, which will provide an indication price of bitcoin across certain cash bitcoin exchanges
Investment by the funds will also be made through the vehicle established in Cayman Islands as a wholly-owned subsidiary of the Fund. Investment will be approx. 25% of the total assets and the amount can be increased to optimize the returns, if the fund advisor believes that doing so is in the best interest of the funds and results in tax efficiency. The Fund will also invest in short-term cash instruments e.g. U.S. Treasury Bills, Repurchase Agreements and Borrowing. The Fund will not not invest directly into, the cash price of bitcoin but will be through future contracts and in order to keep the exposure, the fund will sell futures contracts near expiration and will replace it with new contracts with a later expiration date as a rolling futures contract.
On the risk side, since the price of bitcoin futures differ from the cash price of bitcoin, the performance of the Fund will differ from the spot price of bitcoin. Historically the Bitcoin and Bitcoin future have been too volatile, as a result value of an investment in the Fund – could decline significantly even become zero. On the liquidity side, there are concerns as Bitcoin future market is evolving. Further Manipulation risk e.g. a scenario were group of person gains control of 51% of the Bitcoin Network, which may lead to manipulation of transactions, halting payments etc
Earlier the US Infrastructure bill helped in mainstreaming the digital currency by providing tax framework for it. SEC approval will help in opening the investment gates for public, who wants to reap the benefit of digital currency, and at the same time minimize the risk of investment, by using the services of professional asset managers, by pooling of money in Bitcoin ETF
Bureau Galactik Views