A Bitcoin exchange-traded fund (ETF) still doesn’t exist in the U.S. But when such a product does become available, evidence is suggesting that it will explode onto the scene with full force.
But as Bitcoin receives more and more attention in the mainstream financial press, investors are clamoring for new ways to access the hot cryptocurrency on a platform that most traders are more comfortable with.
That includes futures and ETFs. But regulators are expressing reservations about Bitcoin-backed exchange-traded products…
However, some market observers hope a vibrant futures market will pave way for Bitcoin ETFs becoming a thriving reality.
Nasdaq could launch futures based on the soaring cryptocurrency as soon as next year. Nasdaq is the third U.S.-based exchange operator to announce plans for Bitcoin futures.
Several weeks ago, Bitcoin surged after CME Group, the world’s largest exchange owner, announced its plans to introduce Bitcoin futures by the end of the year.
The Chicago Board Options Exchange (CBOE) actually began listing the first ever Bitcoin futures contract on Monday, December 11th. And everything went “according to plan” with a bullish first day.
If Bitcoin futures can pave the way for ETFs, the impact it will have will be huge.
XBT Provider, a unit of CoinShares, offers Bitcoin- and Ethereum-based exchange-traded notes dominated in euros and Swedish krona that trade in Stockholm.
These products are fairly new and are proving to be an incredible success in terms of adding assets.
To put their success into perspective, Eric Balchunas, senior ETF analyst for Bloomberg, describes Sweden’s Bitcoin ETF as bigger than around 80% of U.S. ETFs.
Similarly, at the end of November, the Stockholm-listed Bitcoin ETN had $700 million in assets under management — a massive amount for an exchange-traded product in Sweden.
An ETN is a bond security where an issuing financial institution promises to pay investors a return on a benchmark index before the ETN matures.
Additionally, some ETNs are a type of debt security where investors will have to watch out for the creditworthiness of the issuing bank.
ETNs provide access to hard-to-reach asset classes and sectors, such as master limited partnerships, business development corporations and commodities, and others. The ETN structure provides a tax-efficient way to invest in a range of asset classes.
But American investors may have a bit longer to wait before they can get their hands on anything like Sweden’s exchange-traded products.
A successful Bitcoin futures market in the U.S. could green-light the long-awaited debut of Bitcoin ETFs in the world’s largest ETF market.
CNBC reports a similar sentiment: The assumption is that the trading of Bitcoin futures will bring the next logical move, Bitcoin ETFs, which will then bring more attention to ETFs and further push legitimization of Bitcoin.
A vigorous, regulated Bitcoin futures market could make the Securities Exchange Commission (SEC) more comfortable with Bitcoin exchange-traded products, too.
The SEC has hinted that this just might be the solution. But think about it: Bitcoin was designed to be unregulated. But while the blockchain hasn’t been hacked, the platforms that support the cryptocurrencies have been. And no one is watching over those groups.
You can see why the SEC is showing some concern.
But the launch of futures would be a major step for Bitcoin and other cryptocurrencies, as well, becoming mainstream as derivatives will provide much-needed liquidity and also legitimacy to it.
Many traders and investors have avoided Bitcoin due to its extreme volatility. Derivatives will provide them with an easy way to bet on the price of cryptocurrency, both up and down, and also hedge their exposure.
Further, many institutional investors are prohibited from investing in Bitcoin directly, and derivatives would provide them with a way to do it — first with futures and then with ETFs.
Some traders thrive on volatility, and with the stock market’s volatility being low over the past few months, many of them may embrace Bitcoin to make (or lose) money on its wild price swings.
Bitcoin’s price might even get a further boost as it becomes mainstream.
Just this past Monday, the price of Bitcoin saw a push above $17,000, hitting a new all-time high just hours after the Chicago-based firm CBOE began trading the derivatives.
The price jumped over $1,000 within minutes. And trading has been relatively smooth since then.
If Monday’s trading is any indication of how the nascent market for cryptocurrency derivatives will progress, then next week should be a notable one, as well.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today