Bitcoin and ETFs
The name of the exchange-traded fund is PROSHARES BITCOIN STRATEGY. That one began trading on the New York Stock Exchange (NYSE) under the symbol BITO US. The IPO of this ETF represents the first of several mutual funds; they are expected to begin trading in the coming weeks. The Securities and Exchange Commission (SEC) is currently considering additional proposals; made by different asset management firms to be able to sell bitcoin index mutual funds to investors.
What is important to be clear about investment funds?
It is important to keep in mind that these index funds will not replicate the spot price of the cryptocurrency. Nor are they going to have actual bitcoins in their custody. The fund's objective is to gain capital appreciation through active management with bitcoin futures contracts. Regulated bitcoin futures debuted on the Chicago Mercantile Exchange in December 2017. Since that date, the flow of funds into this asset class has grown significantly from institutional investors.
The regulators consider that due to the lack of regulations on markets where cryptocurrencies are traded; investors have greater exposure to fraud and market manipulations on the price of these assets. Therefore, the agency has indicated that it prefers exposure through futures markets. It is not ruled out that in the short term index funds will effectively replicate the real price of bitcoin.
One issue to consider with futures-based ETFs is that by having to perform rollovers (movement of contract change in an underlying due to the expiration of the underlying) on a regular basis; it implies an additional cost that reduces its value by a percentage. The bitcoin futures market has shown a contango (Futures prices are higher than the price of the Underlying Asset in the spot market), so in this scenario the cost could be significant.
To conclude
Leaving aside these technical aspects, there is no doubt that an important percentage of the new generations with interest in this "asset" can do it through different digital platforms. Those that allow buying cryptocurrencies either in whole units or in fractions; so probably this type of investment vehicles are not of their total interest. However, taking into account that the evolution of the futures market is duly regulated; these products can be an important support for large funds and institutions to increase or initiate their exposure to this asset class in a liquid, effective and transparent manner.
In conclusion, this vehicle may allow investors to gain some exposure to the leading cryptocurrency through their regular investment portfolio. Based on each client's risk aversion, allocating a percentage of the total portfolio to this new product could provide further portfolio diversification with an attractive potential return.
