‘A better option than MicroStrategy’, claim experts analysing Bitcoin ETF

The highly-anticipated approval of Bitcoin ETFs has finally arrived, with the New York Stock Exchange launch of the ProShares Bitcoin Strategy Fund under the BITO ticker (trading BTC futures).

BITO started the day with $20m in seed capital and the market reaction was sensational. Trading volume exceeded $1bn and the ETF closed at $570m in assets – all in its first day.

The BITO launch is the first in a string of ETFs expecting approval from the SEC during the next fortnight, with Valkyrie, Invesco, and VanEck all anticipated by the end of October. Galaxy, AdvisorShares, and BitWise are set to be listed in November.

The move has clearly excited crypto markets, although the price action has been for the most part dominated by Bitcoin (BTC) which stands to posted a new all-time high today.

But there has also been a lot of FUD floating around in the crypto community, with some stoking concerns about a potential ‘buy the rumour, sell the news’ event – as took place with the CoinBase IPO back in February.

In an effort to ascertain exactly what all these new BTC ETFs and the SEC’s surprise approval means for Bitcoin and the industry, Coin Rivet turned to the experts to provide their opinions and analysis.

Institutional pressure drove regulator decision on BTC

Brad Yasar, founder and CEO of EQIFI (a DeFi platform for lending, borrowing, and investing), suggested the move was only made possible due to the lobbying pressure of institutional finance on regulators.

“I suspect that regulators were willing to approve Bitcoin futures ETFs because there is a lot of institutional pressure to gain access to this alternative investment opportunity,” he explained.

“A lot of new interest is building for BTC, but because these entities are not allowed to invest in just anything, they need exposure to BTC in a form that they can invest in. BTC futures ETFs are one of those approved formats.

“It will also reduce volatility because ETFs are not going to trade Bitcoin directly, instead the trading will shift to the ETF products on the traditional markets. It will be a gradual but long term effect.

“Overall, I think this is good news for advancing adoption. Bitcoin ETFs are very important because they allow arms-length exposure to Bitcoin without actually having to buy and hold Bitcoin in a wallet. The easier Bitcoin investing becomes, the more institutional adoption it will see, and the more growth we will experience across crypto.”

Interestingly, on the topic of Bitcoin ETF futures Yasar clarified that it would take spot ETFs to really see monumental shift.

“I expect there will be positive price action if and when more long term holders acquire Bitcoin either directly or through ETFs,” he added.

Bitcoin ETF better option than MicroStrategy

Amber Ghaddar, co-founder of AllianceBlock – the chain-agnostic protocol building compliant and data-driven financial products to bridge the gap between traditional and decentralised finance – explained the realities of the ETF.

“However, looking at the prospectus, the ProShares ETF invests in the front month with what it includes of basis and roll risk which can account in a worst-case scenario for an annualized discount of 38% per annum,” she explained.

“It is potentially a better option than investing in MicroStrategy stock which trades as a proxy bitcoin investment but potentially not better than the Grayscale Trust – invested in physical bitcoins –  which has been traded at a discount since late February and reached a new low of 20.5% discount on Monday.

“Ironically, the fact that Grayscale has been trading at a discount for so long can be an indicator that those clients interested in Bitcoin exposure have filled their need with either direct exposure or through other instruments and could indicate a lower than expected demand for the ProShares ETF.”

But what exactly is behind the SEC’s hesitancy in approving Bitcoin-related financial products when there is clearly demand?

“The main issue the SEC has is that Bitcoin trades 24/7, on multiple exchanges, across jurisdictions and has no official closing price, as the ETF is supposed to track the asset 1-to-1, the SEC can be worried about tracking errors that due to volatility and the unconventional structure of the market,” she added.

Expert opinion on ‘buy the rumour and sell the news’ BITO fud

Seamus Donoghue, VP of Strategic Alliances at METACO, a digital asset infrastructure provider to financial institutions including Standard Chartered broke down how the big players will be sizing up Bitcoin price action.

“Bitcoin has been rallying strongly in anticipation of an ETF approval with Bitcoin up over 40% since the start of the month,” he said.

“This could be a case of ‘buy the rumour and sell the news’ and we risk a pullback on an actual ETF announcement. That said, with recent confirmation from both the Fed’s Powell and SEC’s Gensler that although regulations are coming, there is no China-style clampdown envisioned, this will provide comfort to the broader institutional market that it is here to stay.

“It is a strong indicator of the bullish market that markets did not react significantly to Jamie Dimon’s comments on Bitcoin last week.”

And on China FUD?

“Although the initial reaction to the China ban was negative this is a great long-term outcome for the industry,” he explained.

“With the stroke of a pen, the ban has eliminated the biggest offenders of dirty coal-based mining and the systemic exposure to China. We are already seeing a much more positive ESG narrative around crypto.”