NEW YORK (AP) — Interested in Bitcoin but don’t want to open a crypto trading account? Wall Street has something for you.
ProShares said Monday it plans to launch the country’s first exchange-traded fund linked to Bitcoin. The ETF with the ticker symbol “BITO” is expected to begin trading Tuesday, barring any opposition from regulators.
It’s the latest milestone for Bitcoin and for the ETF industry in general. In a statement, ProShares CEO Michael Sapir compared the launch of a crypto-linked ETF to the 1993 launch of the first stocks ETF and the 2002 rollout of the initial bond ETF. The U.S. market for ETFs has grown to more than $5.4 trillion and they’re owned by roughly 9% of all the nation’s households, according to the Investment Company Institute.
Cryptocurrencies, meanwhile, have exploded into a nearly $2.5 trillion industry after the creation of thousands of digital currencies. Bitcoin is the biggest of them all, with a total value of nearly $1.2 trillion. But like much in the crypto world, the Bitcoin-linked ETF is a bit complicated.
The fund won’t invest directly in Bitcoin itself. Instead, it will focus on futures related to Bitcoin, a market that’s overseen by U.S. regulators and can be complicated in its own right. That means investors need to be particularly aware of what they’re buying, and how it’s likely to perform.
Here’s a look at what the ETF does and doesn’t do:
WHY IS THIS A BIG DEAL?
A Bitcoin-related ETF would give investors a new way to get involved in the fast-growing field of cryptocurrency. Bitcoin’s price has more than doubled this year, and a growing number of investors see it as a way to offer their portfolios some protection.
The hope is that Bitcoin’s price will move in a way that’s not as tied to expectations for the economy as stocks and other investments are. If it does, it could help support portfolios when everything else is falling or when inflation is high. It doesn’t have a perfect track record, though: When the U.S. stock market fell nearly 34% at the start of the pandemic in 2020, Bitcoin lost roughly as much.
Some investors may not want to open a new trading account for cryptocurrencies. Instead, they can buy the ETF through old-school brokerage accounts they may already be using for their stocks or their IRA.
WHAT IS AN ETF?
An exchange-traded fund allows investors to easily buy a whole basket of investments. Some of the most popular ETFs track things like the S&P 500 index of big U.S. stocks, the price of gold or high-yield bond indexes.
Unlike with a traditional mutual fund, which prices just once a day, investors can buy or sell an ETF throughout the trading day. That’s particularly important for cryptocurrencies, whose prices can swing sharply from minute to minute, let alone day to day.
SO THIS NEW ETF WILL TRACK THE PRICE OF BITCOIN?
No, and this is one of the most important distinctions. The fund will invest in Bitcoin futures, which are essentially bets on where Bitcoin’s price will go in each of the months ahead.
The Bitcoin futures market is overseen by the Commodity Futures Trading Commission, which may offer investors more protection. But it also doesn’t perfectly track the price of Bitcoin.
“This is not a replacement for owning bitcoin directly,” said Todd Rosenbluth, head of ETF and mutual fund Research at CFRA.
WHO IS THIS BEST SUITED FOR?
Because it will be invested in futures instead of actual Bitcoins, the ETF is less than ideal for a Bitcoin believer who wants to invest in it for the long term, Rosenbluth said.
Instead of a buy-and-hold investor, he said it’s more likely to be popular with shorter-term traders who want to make money off its volatility, at least initially. There’s certainly plenty of opportunity for that.
In the span of roughly three months earlier this year, Bitcoin more than halved from nearly $64,900 to less than $30,000. Since that low point in July, it’s surged back to nearly $61,800.
HOW MUCH WILL IT COST?
BITO will have an expense ratio of 0.95%. That means $95 of every $10,000 invested in the fund will go toward paying its annual operating expenses.
Such fees could be a hard sell for Bitcoin fans, many of whom see cryptocurrencies as a way to erase middlemen from industries.
IS THIS THE FIRST AND LAST SUCH ETF?
No, several other fund companies have their own applications for ETFs linked to Bitcoin futures. Some may try to separate themselves by charging lower fees.
Beyond just extending the reach of Bitcoin, the ETFs will help create a bigger ecosystem in the financial world around it, said Ben Johnson, director of global ETF research at Morningstar.
With a Bitcoin-linked ETF, skeptical investors will have something that they can sell short. In such a trade, they can bet on the ETF’s price to fall by borrowing a share and selling it, hoping to buy it back later at a lower price. The ETFs could also allow for trading of options around them.
“The money made on all that trading activity is going to dwarf the money made just on collecting fees for those products,” Johnson said.
Cryptocurrencies reach post record inflow, rise of the Omicron asset
CoinShares revealed Monday a heavy institutional investor flow into cryptocurrency products and funds despite a substantial drop in the past weeks, as a new digital asset emerges to the scene, carrying the same title after the new coronavirus variant, the Omicron.
As of November 26th, digital assets’ total incursions into the cryptocurrency sector reached a whopping $9.5 billion, compared to 2020’s Bitcoin inflow of $6.7 billion, with a matter of one week reaching $306 million.
According to data from digital asset manager CoinShares, Bitcoin witnessed its heftiest inflow of $247 million after releasing another investment asset in Europe. During that time, European Investment management firm Invesco issued its bitcoin exchange product in the continent, according to media reports.
Concurrently, asset manager WisdomTree also registered a trio of cryptocurrency basket exchange-traded products (ETP) into the Swiss Stock Exchange (SIX) and Frankfurt-based Börse Xetra, as stated by CoinDesk.
In parallel, CoinShare also unveiled that cryptocurrency has attained global inflow tallying to $2.7 billion for 11 consecutive weeks. Last week, the world’s largest crypto asset, Bitcoin, endured a heavy price drop by 2.3 percent, following a 10.4 percent from a prior week.
Last Friday, Bitcoin endured another plunge of almost 9 percent as investors abandoned the decentralized currency with fear of heavy impact support by the emergence of a new COVID-19 variant, Omicron, with last value fluctuation rising to 2 percent, with Bitcoin value reaching $58.483.
However, the globally renowned asset quickly recovered from its demise, following global markets attaining a smoother and soother bearing in valuation on Monday.
“Inflation is skyrocketing, and people are searching for more alternatives for their money in the bank,” chief of cloud-based automated crypto trading bot Cryptohopper, Ruud Feltkamp, said in a statement.
“I don’t think it’ll take long until investors see this as a ‘cheap’ buying moment. We are still in the midst of the bull cycle, and I think rising inflation will lead to more money being allocated to stocks and crypto,” he further added.
Shortly after presenting itself to the investor registry, the value of the newly risen digital asset hit $688 from Friday till Monday, before witnessing a plunge of approximately 75 percent, CoinGecko revealed.
Omicron, defined as “a decentralized treasury-backed cryptocurrency protocol,” initiated trading at around $371, and by Thursday, it marked an estimated value of $65.
Last week, the World Health Organization branded the latest coronavirus variant Omicron, with an expanded list of countries broadcasting the hazardous intensity of it carrying “very high” worldwide threats of waves, even though scientists revealed that would take weeks to fully comprehend the severity of the variant spread on a global scale.
While the ambiguity of Omicron’s launch date lingers, data from GoinGecko demonstrated that the token emerged on the scene on November 8th, with a Telegram channel labeled OmicDAO was launched a day before.
Currently, there is no official and direct representative of the Omicron token.
U.S. federal agencies aim to clarify crypto legality
U.S. regulators uncovered their future plan to address the rise of cryptocurrency for the upcoming year, with focus directed at the “greater clarity” concerning the legality of decentralized transactions, reported by Bloomberg.
The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) unveiled their future scheme to address the uprise of cryptocurrency, placing the digital asset with utmost priority for 2022.
The plan could potentially focus on stablecoin issuance via loan collateral and the manifestation of cryptocurrency on enterprise balance sheets. The three federal entities aim to examine the needed means to employ bank capital and liquidity standards to U.S.-based banking organizations.
The shared roadmap has yet to be finalized, given that the agencies are looking into different issues to accommodate the market’s changes. It will adhere to crypto policy “sprints” to assist in structuring regulatory priorities for the upcoming year.
The OCC, the Reserve, and the FDIC’s goals are to determine any potential threats and establish the efficacy of current rules. While there is no certainty that the roadmap will create fundamental changes, however, one thing is certain though, it will not work in favor of holders of decentralized assets.
The American regulatory move on cryptocurrency will proceed with caution, with crypto users having to proceed with cautions and hold back on specific activities to adhere to the word of law.
Consortium of Japanese firms assesses digital currency for 2022 launch
A consortium of almost 70 Japanese firms revealed on Wednesday in a conference its plan to initiate an experimental phase of testing a yen-based digital currency to be ready for launch in early 2022.
Three of the country’s mega-banks have always shown intentions of joining on the decentralized currency, which will mainly be supported by bank deposits, while utilizing a known platform to hasten a transfer of massive funds and settlement between companies, including cutting costs.
The consortium will incorporate Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc, and Sumitomo Mitsui Financial Group Inc. Tmizhuhese companies have had meetings regularly for the past year to examine the required measures to create a widespread infrastructure for digital payments.
In parallel, Japan’s three mega-banks also represented their private digital payment systems but have failed to mirror the same effort provided by financial technology entities, such as Softbank Group-backed PayPay – the multinational conglomerate is not a part of the consortium.
“A digital currency system built on a bank deposit-backed common platform will fit the Central Bank Digital Currency (CBDC) that could be planned and implemented in Japan,” special advisor to DeCurret and former head of Japan’s Financial Service Agency, Toshihide Endo, said during Wednesday conference.
The Japanese consortium will also incorporate a multitude of lenders, including Japan Post Bank Co Ltd, brokerages and insurers, and non-financial companies, such as Nippon Telegraph Corp, Kansai Electric Power Co Inc, and East Japan Railway Co.
In addition, other companies will also investigate options to gauge a currency such as this, all while experimenting with different uses for the digital currency in various industries, from energy to retail.
From another aspect, the consortium’s approach to releasing its own plan to digital currency will most likely trickle down the Bank of Japan’s scheme of launching its own CBDC, with regulators revealing they are working in synchronization with the BOJ if a digital currency is to be issued.
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