{"id":51947,"date":"2021-10-29T07:00:00","date_gmt":"2021-10-29T04:00:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=51947"},"modified":"2025-09-03T02:28:29","modified_gmt":"2025-09-02T23:28:29","slug":"a-compromise-solution-how-bitcoin-futures-etfs-will-shape-the-crypto-market","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/a-compromise-solution-how-bitcoin-futures-etfs-will-shape-the-crypto-market\/","title":{"rendered":"A Compromise Solution: How Bitcoin Futures ETFs Will Shape the Crypto Market"},"content":{"rendered":"<p>Bitcoin-<span data-descr=\"exchange-traded fund\" class=\"old_tooltip\">ETF<\/span> has long been the \u201cHoly Grail\u201d for many in the cryptocurrency community. The claim that such a product could be a genuine game-changer was made not only by industry experts but also by <a href=\"https:\/\/www.businessinsider.com\/jpmorgan-explains-why-a-bitcoin-etf-is-a-holy-grail-2018-2\">analysts<\/a> at traditional financial institutions.<\/p>\n<p>In October the market finally received the coveted instrument, albeit with the underlying asset as a derivative on digital gold.<\/p>\n<p>ForkLog examined whether to expect a revolution from Bitcoin futures ETFs, why these funds are criticised by experts, and why institutional investors buy their shares.<\/p>\n<div class=\"wp-block-text-wrappers-keypoints article_keypoints\">\n<ul class=\"wp-block-list\">\n<li>The SEC had long opposed the launch of a Bitcoin ETF, arguing that the market was not mature enough. The agency\u2019s theses have partly lost relevance, but it still harbours concerns about potential manipulation and fraud.<\/li>\n<li>Bitcoin futures exchange-traded funds are more of an institutional instrument, as retail investors have no trouble accessing the crypto market.<\/li>\n<li>The new product is already criticised, including for its imperfect correlation with the underlying asset. However, its approval brings a degree of clarity to the stance of the U.S. regulator, a positive fundamental factor.<\/li>\n<\/ul>\n<\/div>\n<h2 class=\"wp-block-heading\">Denial, Anger, Acceptance<\/h2>\n<p>An ETF is an exchange-traded fund whose shares freely trade on an exchange. Unlike mutual funds <span data-descr=\"\u043f\u0430\u0435\u0432\u044b\u0435 \u0438\u043d\u0432\u0435\u0441\u0442\u0438\u0446\u0438\u043e\u043d\u043d\u044b\u0435 \u0444\u043e\u043d\u0434\u044b\" class=\"old_tooltip\">mutual funds<\/span> and other investment funds, you can perform the same operations as with securities, buying and selling shares at any time during the trading session.<\/p>\n<p>This product provides investors with the ability to redeem funds instantly and excludes brokers from managing the fund. The latter helps lower client costs, as the management company retains only a fraction of a percent of the asset base for itself.<\/p>\n<p>The crypto community had waited nearly eight years for a Bitcoin ETF. The first application for creating such a product <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/1579346\/000119312513279830\/d562329ds1.htm\">filed<\/a> by the Winklevoss twins Tyler and Cameron Winklevoss in 2013, but the <span data-descr=\"U.S. Securities and Exchange Commission\" class=\"old_tooltip\">SEC<\/span> rejected it.<\/p>\n<p>In February 2021, asset-management company Hashdex from Brazil <a href=\"https:\/\/u1f987.com\/en\/news\/hashdex-in-partnership-with-nasdaq-launches-cryptocurrency-etf-on-bermuda\">launched<\/a> an exchange-traded fund on the Bermuda Stock Exchange based on the Nasdaq cryptocurrency index <a href=\"https:\/\/www.nasdaq.com\/crypto-Index\">NCI<\/a>. In the following months such vehicles appeared in <a href=\"https:\/\/u1f987.com\/en\/news\/brazil-becomes-the-second-country-in-the-world-to-approve-a-bitcoin-etf\">Brazil<\/a> and <a href=\"https:\/\/u1f987.com\/en\/news\/canada-registers-bitcoin-etf-ahead-of-the-united-states\">Canada<\/a>, but all eyes were on when the regulator of the world\u2019s largest economy \u2014 the United States \u2014 would approve an ETF.<\/p>\n<p>The SEC had long resisted launching exchange-traded funds on the basis of digital assets. In July 2018, after again denying the Winklevoss twins, the agency <a href=\"https:\/\/www.sec.gov\/rules\/other\/2018\/34-83723.pdf\">published<\/a> a document detailing its decision.<\/p>\n<p>The regulator gave three key arguments:<\/p>\n<ul class=\"wp-block-list\">\n<li>cryptocurrency derivatives markets do not have sufficient liquidity;<\/li>\n<li>there are no qualified custodial services in the United States;<\/li>\n<li>the industry lacks a culture of compliance necessary to prevent fraudulent actions and manipulation.<\/li>\n<\/ul>\n<p>Since then, the situation has significantly changed, and the SEC\u2019s theses have to some extent lost relevance. <a href=\"https:\/\/u1f987.com\/en\/news\/sec-commissioner-hester-peirce-says-regulators-bitcoin-etf-requirements-are-excessive\">Agree<\/a> even some agency officials, notably Commissioner Hester Peirce, who has repeatedly <a href=\"https:\/\/www.sec.gov\/news\/public-statement\/peirce-dissenting-statement-34-88284\">called<\/a> the agency\u2019s requirements \u201coverstated.\u201d<\/p>\n<p>First, a regulated market for crypto derivatives had matured \u2014 by September 2021, despite overall negative momentum, open interest in Bitcoin futures on the <span data-descr=\"Chicago Mercantile Exchange\" class=\"old_tooltip\">CME<\/span> <a href=\"https:\/\/u1f987.com\/en\/news\/september-2021-in-figures-arbitrum-rally-dydx-hype-and-lightning-network-revival-after-el-salvadors-bitcoin-legalization\">reached<\/a> 36,740 BTC (~$1.53 bln at the rate then), and for microfutures \u2014 2,561 BTC (~$106.5 mln).<\/p>\n<p>Second, several services oriented toward providing custodial facilities for institutional participants emerged, such as Gemini Custody, Anchorage, Coinbase Custody, Bakkt and others. All of them undergo security audits and <a href=\"https:\/\/u1f987.com\/en\/news\/anchorage-becomes-the-first-federally-chartered-digital-asset-bank-in-the-united-states\">possess<\/a> the licenses required to operate in the United States.<\/p>\n<p>The spot price of Bitcoin is heavily influenced by operations taking place in markets outside the SEC\u2019s jurisdiction. In this respect, little has changed since 2018.<\/p>\n<p>Regulation of industry participants in the United States has certainly tightened. Thus, last year U.S. residents <a href=\"https:\/\/u1f987.com\/en\/news\/us-residents-to-report-cryptocurrency-investments-on-the-first-page-of-the-tax-return\">were required<\/a> to report to the Internal Revenue Service (IRS) any transactions with digital assets, and in 2021 authorities unveiled a high-profile <a href=\"https:\/\/u1f987.com\/en\/news\/us-authorities-to-raise-28-billion-from-crypto-transaction-taxes\">infrastructure plan<\/a> envisaging even greater control over cryptocurrency transactions.<\/p>\n<p>Approving a Bitcoin ETF in the United States seemed a natural step, especially given rising institutional interest from traditional finance circles.<\/p>\n<p>With the appointment of a new head of the SEC, who called Bitcoin a \u201ccatalyst for change,\u201d these sentiments only intensified. In the end the regulator did allow the widely anticipated product, albeit not exactly in the form the community had hoped for.<\/p>\n<h2 class=\"wp-block-heading\">Two Acts by Crypto Professors<\/h2>\n<p>In April the SEC appointed the former chair of the <span data-descr=\"U.S. Commodity Futures Trading Commission\" class=\"old_tooltip\">CFTC<\/span> Gary Gensler as head. In that role he was known for a hard line on regulation, though many expected the Commission to be more lenient toward the digital asset industry under his leadership.<\/p>\n<p>Much of this optimism rested on the fact that, unlike Jay Clayton, Gensler understands the underlying blockchain technology. He previously worked at MIT, where he taught a course on the potential uses of distributed ledgers and Bitcoin in the modern financial system.<\/p>\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\">\n<div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"1. Introduction for 15.S12 Blockchain and Money, Fall 2018\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/EH6vE97qIP4?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div>\n<\/figure>\n<p>Nevertheless, as early as 2018 the official stated that trading Ethereum and XRP tokens could violate U.S. law. A year later, on a panel discussion with Commissioner Peirce, he confirmed his commitment to strict regulation and said that a rollback of oversight would be an undesirable scenario.<\/p>\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\">\n<div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"MIT Bitcoin Expo 2019 - Taming the Wild West: Effectively Regulating the Blockchain Space\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/dLRL1bEpI0c?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div>\n<\/figure>\n<p>Already in his role as SEC chair, Gensler made it clear that investors\u2019 interests are a priority. This is echoed in his August statement regarding potential crypto ETF approvals \u2014 applications should be filed under the 1940s laws, as they provide stronger consumer protections.<\/p>\n<p>Until recently most applications for spot Bitcoin ETFs were filed under the Securities Act of 1933. It provides for the registration of ETF issuers with the SEC but does not regulate the precise structure of such products.<\/p>\n<p><a href=\"https:\/\/www.govinfo.gov\/content\/pkg\/COMPS-1879\/pdf\/COMPS-1879.pdf\">The Investment Company Act of 1940<\/a>, on the other hand, does not directly apply to financial instruments but contains a number of standards, including limits on leverage and rules related to the use of derivatives. It requires the issuer to have an independent board of directors and obliges it to calculate net asset value daily and to guarantee a fair market price for the shares.<\/p>\n<p>WisdomTree\u2019s chief counsel Ryan Luvar <a href=\"https:\/\/www.theblockcrypto.com\/news+\/122135\/what-the-launch-of-bitcoin-futures-etfs-means-in-the-quest-for-a-spot-etf\">noted<\/a> that these two acts \u201creally focus on different cases.\u201d<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cThe Securities Act of 1933 focuses on the information the fund discloses in its prospectus, and the Investment Company Act of 1940 focuses on how the fund operates and is governed. In this way, SEC staff can come for an inspection and determine whether the fund is operating and whether supervision of the entire list of statutory requirements is being observed,\u201d he explained.<\/p>\n<\/blockquote>\n<p>Luvar also stressed that the SEC is unlikely to approve spot Bitcoin ETFs in the near future, because the regulator is unsettled by the current pricing mechanism.<\/p>\n<p>Trust in Gensler\u2019s stance on Bitcoin futures on the CME is likely linked to the fact that the platform is a federally regulated market \u2014 under the oversight of the CFTC.<\/p>\n<h2 class=\"wp-block-heading\">Institutional History<\/h2>\n<p>On October 15, 2021 the SEC <a href=\"https:\/\/u1f987.com\/en\/news\/sec-quietly-approves-first-futures-based-bitcoin-etf\">approved<\/a> ProShares\u2019 application to launch an ETF based on CME\u2019s Bitcoin futures. The Bitcoin Strategy ETF (BITO) <a href=\"https:\/\/u1f987.com\/en\/news\/trading-starts-for-proshares-first-us-bitcoin-futures-etf\">began trading<\/a> on the New York Stock Exchange on October 19.<\/p>\n<p>The product <a href=\"https:\/\/u1f987.com\/en\/news\/proshares-bitcoin-futures-etf-posts-the-second-most-active-debut\">proved<\/a> the second-most active debut. On its first day its turnover reached 24.42 million shares, nearly $1 billion, and BITO needed just two days to surpass that milestone.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">RECORD BREAKER: <a href=\"https:\/\/twitter.com\/search?q=%24BITO&#038;src=ctag&#038;ref_src=twsrc%5Etfw\">$BITO<\/a> assets up to $1.1b after today, making it the fastest ETF to get to $1b (2 days) breaking GLD\u2019s 18yr old record (3 days), which is poetically apropos. <a href=\"https:\/\/t.co\/yGXyfwaogD\">https:\/\/t.co\/yGXyfwaogD<\/a><\/p>\n<p>\u2014 Eric Balchunas (@EricBalchunas) <a href=\"https:\/\/twitter.com\/EricBalchunas\/status\/1450930780289519619?ref_src=twsrc%5Etfw\">October 20, 2021<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>As of October 27, trading volume of BITO <a href=\"https:\/\/www.nyse.com\/quote\/ARCX:BITO\">exceeded<\/a> 100 million shares.<\/p>\n<p>On October 22, trading began on Nasdaq for another Bitcoin futures ETF \u2014 from Valkyrie Investments. The instrument showed a more modest debut: its first-day volume reached 3.19 million shares and, after three sessions, 5.74 million shares.<\/p>\n<p>From October 16 to 22, total investments in these two products <a href=\"https:\/\/u1f987.com\/en\/news\/investors-direct-a-record-1-47-billion-to-crypto-funds-in-a-week\">stood at<\/a> $1.24 billion, and aggregate inflows into crypto funds peaked at a record $1.47 billion.<\/p>\n<p>After ProShares\u2019 ETF launched, the price of digital gold renewed its historical high above $67,000. Some compared BITO to the first gold ETF in the United States \u2014 SPDR Gold Trust (GLD). The instrument was launched in November 2004, and to date its assets under management <a href=\"https:\/\/www.spdrgoldshares.com\/usa\/financial-information\/\">have surpassed<\/a> $56 billion.<\/p>\n<p>When GLD was launched, gold traded near $600 per ounce. Since then the price of the precious metal has nearly tripled, while quotes have never fallen back to 2004 levels. Experts reasonably argue that the appearance of ETFs helped drive that shift.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cNow it\u2019s clear that launching ETFs has had a strong impact on the gold market. Today, ETFs are a key part of it,\u201d noted Graeme Takull, head of ETF Securities, in 2013.<\/p>\n<\/blockquote>\n<p>There are 35 gold ETFs trading in the United States. The total assets under management of these funds are estimated at $115.23 billion. The popularity of these products stems from a simple fact \u2014 they ease access to the precious metal for both institutional and retail investors.<\/p>\n<p>Before the first targeted ETF, investing in gold was considerably more cumbersome \u2014 you had to buy bars or coins. Exchange-traded funds allowed ordinary consumers to transact with the asset in the same way they had traded stocks for decades.<\/p>\n<p>Yet with cryptocurrencies those problems do not exist. Billions of dollars in Bitcoin can occupy precisely as much space as a slip of paper with a seed phrase written on it. Digital assets are easy to transport, and retail investors have long had direct access on platforms such as Coinbase and Robinhood.<\/p>\n<p>In an interview with ForkLog, Vladimir Smerkis, co-founder of the Tokenbox.io platform, noted that a Bitcoin futures ETF is largely an institutional instrument.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cI\u2019m one hundred percent sure this is about institutions, because retail in the United States and many European countries already have ways to invest in crypto. ETFs must first appear on the radar of brokers and funds that work with end clients. That will take some time yet.\u201d<\/p>\n<\/blockquote>\n<p>A non\u2011named Financial Times source among Bitcoin fund managers also emphasised that the interest in futures ETFs on digital gold relates to the investment opportunities they provide to traditional market participants.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cIt\u2019s about convenience and accessibility. If you think about where your investors hold capital pools \u2014 in 401(k) plans and in brokerage accounts \u2014 the fact is that ways to access Bitcoin typically lie outside that system,\u201d said the FT source.<\/p>\n<\/blockquote>\n<p>He also noted that unlike crypto purists, most investors do not care about controlling private keys. They simply \u201cwant to buy a product from a trusted provider.\u201d<\/p>\n<h2 class=\"wp-block-heading\">Not the Holy Grail, but a Key Milestone<\/h2>\n<p>In a recent Yahoo Finance interview, Gensler stated that most cryptocurrencies do not fall under investor-protection laws, making the market susceptible to fraud and price manipulation.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">Thank you <a href=\"https:\/\/twitter.com\/YahooFinance?ref_src=twsrc%5Etfw\">@YahooFinance<\/a> &amp; <a href=\"https:\/\/twitter.com\/bcheungz?ref_src=twsrc%5Etfw\">@bcheungz<\/a> for the discussion today! <a href=\"https:\/\/t.co\/cGCew94pl5\">https:\/\/t.co\/cGCew94pl5<\/a><\/p>\n<p>\u2014 Gary Gensler (@GaryGensler) <a href=\"https:\/\/twitter.com\/GaryGensler\/status\/1452634888092401670?ref_src=twsrc%5Etfw\">October 25, 2021<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>According to ETF Store\u2019s Nate Geraci, the comment signals the agency\u2019s unwillingness to approve spot ETFs until a regulatory framework exists, which he believes could take at least a year.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">I was thinking second half of 2022, so O\/U say July 1st of next year.<\/p>\n<p>But honestly, after hearing those Gensler comments, I just don\u2019t see how that happens. How long will it take for Congress to develop a regulatory framework here?<\/p>\n<p>I\u2019m now starting to think 2023 or beyond.<\/p>\n<p>\u2014 Nate Geraci (@NateGeraci) <a href=\"https:\/\/twitter.com\/NateGeraci\/status\/1452659516093435907?ref_src=twsrc%5Etfw\">October 25, 2021<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>According to Kiivkulis, futures ETFs\u2019 lack of yields makes them a \u201ccompromise solution,\u201d so the approval of spot funds in the United States is only a matter of time. <\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cSooner or later the SEC will approve a spot crypto-ETF. Such ETFs already exist in countries like Brazil and Canada, and the United States cannot delay this for long. Otherwise many American investors will continue to prefer trading on foreign exchanges,\u201d the expert said.<\/p>\n<\/blockquote>\n<p>In the short run the introduction of Bitcoin futures ETFs is unlikely to have a material impact on the market. They are young products with limited utility, and substantial liquidity is required for fundamental shifts.<\/p>\n<p>The price rally that many tied directly to the launch of these instruments may have been driven by concerns about potential hyperinflation, as JPMorgan analysts noted.<\/p>\n<p>Nonetheless the long\u2011term impact of this development could be significant. Retail investors can expect volatility to ease gradually as institutions seek to dampen the adverse effects of large price swings.<\/p>\n<p>Equally important, by approving the instrument the SEC signalled that plans to ban cryptocurrencies are no longer merely words, but actions. Given the Fed\u2019s similar stance and China\u2019s de facto exclusion from the equation, this lends some confidence to the market\u2019s future.<\/p>\n<p>Read ForkLog\u2019s Bitcoin news on our Telegram \u2014 crypto news, prices and analysis.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>ForkLog examines whether a revolution is in store for Bitcoin futures ETFs, why experts criticize these funds, and why institutional investors are buying their shares.<\/p>\n","protected":false},"author":1,"featured_media":51948,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[1144],"tags":[18,1211,26],"class_list":["post-51947","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-longreads","tag-bitcoin","tag-stock-market","tag-usa"],"aioseo_notices":[],"amp_enabled":true,"views":"38","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/51947","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=51947"}],"version-history":[{"count":1,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/51947\/revisions"}],"predecessor-version":[{"id":51949,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/51947\/revisions\/51949"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/51948"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=51947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=51947"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=51947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}