The first Bitcoin (BTC) futures exchange-traded fund (ETF) was launched in the United States on October 19, 2021. Since then, several other cryptocurrency investment products have been launched in various markets.
That first ETF, the ProShares Bitcoin Strategy ETF, quickly became one of the top ETFs of all time by trading volume on its debut, and shortly after, several other Bitcoin futures ETFs were launched in the United States, providing to investors different investment options.
For Martha Reyes, head of research at cryptocurrency trading platform Bequant, these options are important. Speaking to Cointelegraph, Reyes noted that in traditional finance, ETFs have “proven incredibly popular in recent years, with ETF assets expected to reach $ 14 trillion by 2024.”
Reyes said investors who have been on the sidelines can now choose to invest in cryptocurrencies if they prefer “low cost, flexibility and convenience.” [of ETFs]Especially since then they don’t have to guard the crypto themselves. “
Custody of crypto assets, Reyes said, can prove to be a “technical barrier for some non-crypto natives.” Launching crypto ETFs can offer investors the kind of diversification they want in their portfolios through crypto, although some may want to access the market “through baskets that reflect different trends in this rapidly evolving market.” She added:
Others prefer to be more practical or have a combination of strategies. The important thing is that investors have options. “
In fact, several options have been launched in recent weeks. US-based firm WisdomTree has listed its cryptocurrency exchange-traded product (ETP), Crypto Mega cap Equal Weight ETP, on the Euronext exchanges in Paris and Amsterdam.
Trading under the ticker symbol MEGA, the product is backed by physical cryptocurrencies, including Bitcoin and Ether (ETH), and rebalanced on a quarterly basis. WisdomTree also launched its WisdomTree Crypto Market (BLOC) and WisdomTree Crypto Altcoin (WALT) ETPs in Europe.
Similarly, in December, Bitcoin Capital AG launched two ETPs on the SIX Swiss Exchange, offering investors exposure to Bitcoin and Ether. These products are actively managed by FICAS AG and are available to institutional, professional and private investors.
So far, these products have been successful and more options are being launched on a regular basis, effectively driving investors’ choices in the market. For some experts, these products are part of the next step for cryptocurrencies to be widely adopted.
Investment and adoption products
For Reyes, participation in these investment products is so far “mainly institutional”, especially in countries like the United States where only futures products are traded. He said retail investors “are aware of the additional costs of rolling over a future versus a spot ETF, which means underperforming the underlying.”
Reyes added that for “broad retail participation, we would probably need to see a spot product.”
Speaking to Cointelegraph Sui Chung, CEO of FCA-regulated crypto index provider CF Benchmarks, said that cryptocurrency investment products are “major drivers of mass adoption,” and although the company would like to “see a wider variety of options, “the impact of these products could still be significant:
“We should not underestimate the impact these products have in attracting new investors and capital to crypto assets and how this can accelerate adoption in the long term.”
Karan Sood, CEO and Managing Director of Cboe Vest, an asset management partner at Cboe Global Markets, told Cointelegraph that increased participation from a diverse set of investors is “good for the market” as it “increases liquidity and helps build the market. ” infrastructure.”
Sood said that before investing, investors should carefully review their possibilities, as some products were initially launched to provide investors with access to the cryptocurrency market, while others “try to provide a solution to the problem of extreme Bitcoin volatility.”
According to Sood, volatility is “endemic to the crypto asset space,” and sell-offs in which Bitcoin and other crypto assets lose more than half of their value are quite common, so much so that drops of more than 20% are expected. Added:
“What is new, however, is the availability of funds that allows investors to access Bitcoin exposure with strategies designed to reduce the impact of severe and sustained declines.”
These funds, he said, take the “set of widely used managed volatility investment strategies in mainstream asset classes” and apply them to Bitcoin futures to protect investors against cryptocurrency volatility.
This volatility is believed to keep some institutional investors on the sidelines and prevented regulators like the U.S. Securities and Exchange Commission (SEC) from finding ways to adequately protect investors and adapt to innovation in the space.
For Chung, the cryptocurrency market has matured to the point that there are now “core” exchanges like Coinbase and Kraken that guarantee fair and manipulation-free trading, so market manipulation shouldn’t be a problem. However, regulated products are preferable for more conservative investors and institutions.
Considering the lack of a spot Bitcoin ETF in the US and the downsides of the futures-based products mentioned by Reyes above, retail investors can gain exposure from other markets or buy cryptocurrencies outright. However, these options are not optimal for some.
Initial Stages for Crypto Investment Products
Buying cryptocurrencies on the spot market has been the strategy that most crypto investors resort to in recent years, but more conservative investors who want to diversify their portfolios may feel uncomfortable with the lack of regulation in the market.
As Cboe Vest’s Sood put it, compared to the “trading and custodial infrastructure that exists for conventional assets like stocks, bonds and funds, there is little regulation.” This lack of regulation, he said, has been “exemplified by persistent news about key loss, system hacking and fraud in crypto asset trading.”
Bitcoin futures investment products operate under the Commodity Futures Trading Commission regulations, while mutual funds with exposure to Bitcoin are actively managed by regulated entities with a rich history of providing strong investor protections.
Taking these differences into account, Sood noted that “unless there is a change in regulation of Bitcoin spot, there is a strong foundation for investments based on BTC futures, but not for spot investments.”
In particular, Bitcoin spot ETFs are available in various jurisdictions. In December, Fidelity Canada launched one such product called the Fidelity Advantage Bitcoin ETF. It is listed on the Toronto Stock Exchange and is denominated in both Canadian and US dollars.
Sood said regulations in the US may be a burden on manufacturers of investment products, but have “provided substantial value and protections to US investors over the years.” These protections, he said, have “stood the test of time for decades” and, as such, investors should opt for domestically regulated products if possible.
While futures-based investment products may not be optimal for retail investors, Sood argued that some sophisticated products have been released to offer investors the cryptocurrency exposure they may be looking for. He concluded:
“Investing in funds abroad may expose US investors to unique risks and undue tax burdens.”
Reyes de Bequant noted that crypto ETFs have less than $ 20 billion in assets under management across 50 products, meaning that we are “still in the early stages of adopting” these products.
However, she views the approval of a futures ETF and the rejection of a spot ETF as “inconsistent” as in other jurisdictions, spot ETFs are already being traded. To make matters worse, a futures product “primarily benefits institutional investors, as it is too expensive for individual investors.
Grayscale Investments has notably responded to the SEC for rejecting VanEck’s application for Spot Bitcoin ETFs, issuing a letter arguing that the SEC is wrong to reject such products after approving several Bitcoin futures ETFs.
CF Benchmarks CEO Sui Chung said that while futures products are regulated instruments with oversight by the CFTC, “it is not that clear for spot Bitcoin,” and the SEC is challenged to balance its compliance mandate. with what American investors want.
However, Chung noted that Bitcoin futures ETFs have already “brought about irreversible change” as they are available “to all members of the investing public in the world’s deepest capital market.”
Markets, he said, have experienced no significant disruptions and “the sky has not sunk”, which means “we have passed the point of no return.” For Chung, companies that can offer investors ETFs that can help diversify and grow their portfolios “will be the winners.”
Make cryptocurrencies more accessible
A Bitcoin spot ETF could make crypto more accessible, but for past experts, the crypto ETF is more than a product with physical exposure – it’s about making crypto exposure more accessible.
For Reyes, the futures ETFs that are traded in the US are a “test to finally approve a spot ETF.” Such an ETF, he concluded, would be very beneficial:
“A spot Bitcoin ETF would further drive retail adoption of Bitcoin. Some investors prefer the ease of accessing the market this way rather than through dedicated crypto exchanges. “
Reyes welcomed the regulation, noting that the more regulated entry ramps from fiat to crypto are the best as these platforms can help indicate that regulatory concerns are waning, further increasing the demand for cryptocurrencies.
Chung said that cryptocurrency investment products can lead to mass adoption by ensuring investors deal with less friction when entering the market, as it may be easier to buy an ETP through an existing brokerage account than to open an account. on a cryptocurrency trading platform:
“We don’t want to be dogmatic about how people invest and learn about cryptocurrencies and its possibilities, our job is to simply open up as many avenues as possible and drive adoption.”
While it’s unclear when the SEC will approve a Bitcoin spot ETF or if existing solutions are enough for more conservative investors to make a move, new investment products are making it easier for investors to gain exposure to the space.
Over time, the trend should continue and new products will be launched, allowing cryptocurrencies to fully develop on the market as a new asset class that could help guard against inflation or economic downturns.