A turning point or a stop?

A turning point or a stop? But others, like Arca CEO Rayne Steinberg, have “mixed feelings” about the event. While pleased that a highly anticipated crypto investment vehicle has finally received regulatory approval, ending eight useless years on the part of U.S. fund issuers, there have been some doubts about the SEC’s approval of the final product meeting, in particular given that it is future-based and has not directly tracked Bitcoin (BTC) price.

“We don’t think ETF futures are a great way to get exposure to bitcoin,” he said on a blog, adding, “Futures-based ETFs work for short-term trading, but there are issues with the futures exchange -Term Tracking Error that most investors look for when exposed to Bitcoin. “

Markus Hammer, attorney and director of consulting firm Hammer Execution, agreed with several others that the event was an unjustified milestone: “It’s just a major milestone for us, way ahead,” added Cointelegraph. They want long-term growth in crypto Range – and many do – you would prefer a “physical” Bitcoin tracking fund, not a derivative of it. “

ProShares ETF is a bet on BTC future Price fluctuations. In other words, “the end product also deviates from the BTC price, in addition to the fact that ProShares as the issuer is just another intermediary and thus counterparty risk for the investor.”

Futures vs. physical ETFs – does that matter?

Many institutional investors will likely wait for a physical bitcoin ETF – tied to the spot market rather than the derivatives market – that tracks the actual price of the cryptocurrency, Campbell Harvey, professor of international business at Duke University, told Cointelegraph. The BTC futures market is relatively small, he explained, “and future buying pressure will lead to negative rolling yields,” which means:

“You pay a premium for buying a futures contract every time you ‘move on’ to the next contract. The physical purchases are much more direct, but the SEC has given no indication that they are ready to let this happen. “

In an interview with CNBC shortly after its launch on October 19, SEC chairman Gary Gensler said suggestions why the agency only allows this indirect route into the crypto space: “What you have here is a product that is overseen by the US federal regulatory agency CFTC for four years and is packaged in something within our jurisdiction” [i.e., the SEC] under the Investment Companies Act of 1940, so we have several options to include them in investor protection. “

In other words, the new product will have two Levels of regulatory protection – CFTC and SEC – against potential hackers, manipulators and fraudsters.

Regardless of its origins, the ProShares fund has clearly caught on with investors – by the end of its second day of trading, it had hit $ 1 billion in assets under management, the earliest of all which ETFs to hit that level?

“This is the first US ETF designed to track Bitcoin, and that certainly means something,” Jeff Dorman, Arca’s chief investment officer, told Cointelegraph, “but it’s definitely not a product the market wants and not so financial either. ”Advisors are happy with the sale, so this could potentially result in lower acceptance than would be the case with a physically backed ETF. “

Some, including Harvey, saw sense when Invesco, a leading ETF provider, announced on Monday that it would be giving up Invitation to tender for the issue of BTC futures contracts ETFs – at least for now – and instead focus on “pursuing a digital, physically secured ETF,” an Invesco spokesman told Bloomberg.

Will pension funds move in?

When asked about pension funds, a conservative but very large subset of institutional investors, Dorman told Cointelegraph, “Pension funds have been doing their due diligence on money for years.” Electronically, but probably not that a Bitcoin futures ETF ” moves the needle ”. ”A lot with this class of investors. “But if ETFs result in greater market capitalization and liquidity, then the sheer size of the bull market makes bonds more convenient to invest. “

Ben Caselin, Head of Research and Strategy at the AAX crypto exchange, told Cointelegraph that “ProShares’ Bitcoin Futures ETF is definitely raising the profile of Bitcoin in the institutional investment community.” “However, there will have to be a variety of Bitcoin ETFs, including physical support for larger players, in order to enter the market based on the ETF support,” said Caselin.

Related: Cryptocurrencies and Pension Funds: Like Oil and Water, or Not?

Nigel Green, CEO of financial solutions firm deVere Group, said in an email to subscribers that the futures-based ProShares ETF “is sure to attract a growing number and a wider range of active market participants, including those who retire and retire” funds as well as use broker accounts “. “But for his part, Dorman said that” ETFs are not really intended for institutional investors – it is more of a product for retail investors. “

Any institutional investor looking to get exposure to Bitcoin has a number of ways to get that exposure, Dorman explained, “so that is not going to change much. I believe that more institutions will adopt all digital assets, but it is likely that less institutional adoption of Bitcoin than other digital assets can be understandable and valuable. We saw new onramps grow in importance – NFT, Gaming, DeFi. “

Will it appeal to individual users?

For retail investors – will an ETF based on Bitcoin futures be attractive or is it too technical?

“There are many stock retailers using trading apps who are not comfortable buying bitcoin on the spot market, let alone withdrawing those funds into their personal wallets,” said Caselin, adding, “In some jurisdictions, you may Retailers not doing this are allowed to trade on centralized cryptocurrency exchanges. ETFs open up new avenues for engaging in Bitcoin’s price action. “

On the flip side, the ProShares ETF’s “separately priced, complex underlying derivatives” could “create an additional layer of complexity for those looking to buy Bitcoin easily and securely,” Banz Capital CEO John Iadeluca told Cointelegraph, while Harvey added that “Small investors with existing brokers like Coinbase or Robinhood can easily get into crypto. You can skip the ETF and avoid the future. “

“However, ETFs are a traditional financial product that can be publicly traded like a stock on a stock exchange,” notes Hammer. “This will certainly make it attractive for a non-savvy retail customer to get into crypto through their existing trading accounts and familiar (centralized) banking system.” You don’t have to deal with hot / cold storage decisions, cryptocurrency exchanges, fraud, tax issues and the like . “Comfort works wonders here.”

Is the Ether ETF in the card?

Of course, Bitcoin isn’t the only star in the crypto galaxy. In fact, its dominance has diminished for some time in the last year, and there is even talk of BTC-ETH finally “going away” where Ether (ETH) overtakes Bitcoin in total price. It asks: How far is an SEC-approved Ether ETF?

Jay Hao, CEO of the OKEx crypto exchange, told Cointelegraph: “Since Ethereum is the second largest cryptocurrency in the world, the possibility of an Ethereum ETF is very high.”

“Ethereum has a bitcoin track record in terms of price promotions and attention,” said Caselin. “However, in contrast to Bitcoin, Ethereum would not be suitable as legal tender. In addition, Ethereum is still in beta and although the project did exceptionally well, there are still questions about the transition to the Proof of Stake. [consensus protocol] As is. ” Currently:

“Ethereum is more about platforms than assets. I won’t see an Ethereum ETF on the horizon anytime soon until the space has matured further. “

Iadeluca disagreed. “I think the approval of Ethereum futures ETFs is now more likely,” especially since the Ethereum-based investment products have closely followed the institutional product developments of Bitcoin in key markets. “However, this can take some time.”

An important turning point?

Where are the events of the week represented overall on the historical importance scale of the cryptocurrency? Was that really a turning point where everything changed?

Hao told Cointelegraph, “This is definitely an important milestone in the further development of the crypto industry. More interest and participation from institutional investors can only help with mainstream acceptance. “As bitcoin and crypto adoption rates rise, the industry will continue to grow.”

However, Harvey cautioned against succumbing to a hype. “Overall, regulatory uncertainty is holding back all of the space and additional guidance is needed,” he told Cointelegraph, while Hammer added that “the market is looking for a physical ETF rather than a crypto futures ETF.” He’s also true to that the market …