Bitcoin (BTC)Cryptocurrency

Will the Markets Embrace a Bitcoin ETF?

The first Bitcoin Exchange Traded Fund (ETF) released in the United States is poised to be available in October 2021. The last hurdle for this ETF is the formal approval of the Security and Exchange Commission. Sources say that the agency might never formally approve the ETF. Still, the move forward by ProShares, who are planning on launching a Bitcoin ETF in the week beginning October 18, 2021, means that it’s unlikely that the agency will block the release of this product. On Friday, October 15, 2021, NYSE Arca certified the listing of the ETF. According to Federal law, the exchange is allowed to list security without the intervention of the SEC. The proposed listing date of the ETF is Monday, October 18, 2021, but this does not mean that it will start trading on that date.

What is Getting Listed?

The ETF is called the “Proshares Bitcoin Strategy ETF.” The security objective is to expose investors to the Bitcoin futures contract listed on the Chicago Mercantile Exchange (CME). An ETF is an asset that trades on an exchange like a stock. It will be open during the regular exchange trading hours and during electronic trading hours that are available for this ETF. ETFs try to mimic the movements of other products.

The Bitcoin ETF will not hold any digital Bitcoin, such as in a cryptocurrency account like that offered by Coinbase. Rather, they will only have Bitcoin futures contracts. The online trading you will be able to transact will not be Bitcoin that you can use to purchase goods or services. This product can only be used as an investment product.

Why Is This Important?

The listing and trading on the NYSE will provide access to several organizations that could not expose their clients to cryptocurrency. While many large financial institutions have access to digital wallets and over-the-counter products, many are only allowed to trade using stocks, bonds, and ETFs. Significant mutual funds like Fidelity and Vanguard might have restrictions that do not allow them to purchase digital currencies like Bitcoin through a wallet or even using over-the-counter products like the OTC stock GBTC (Grayscale Bitcoin Trust). Many significant financial mutual funds are also not allowed to purchase futures and options on futures contracts.

An administrative rule that did not enable digital wallets, OTC trading, and no futures trading options on futures contracts would restrict stock trading funds. The introduction of an ETF could open the door to a new asset class for thousands of investors. Pension funds and retirement funds could diversify their portfolios into cryptocurrency for the first time with the introduction of a Bitcoin ETF.

What Has Happened to Bitcoin?

The excitement surrounding mainstream access to a Bitcoin ETF has helped prices rally and re-test their all-time highs. Bitcoin prices bottomed during Q3 2020 and have more than doubled in the past 2 months. Resistance is seen near the old all-time highs, which is a close above 63,565. A breach of this level would likely signal a new range of higher prices. On the date that the listing was expected, prices were overbought, with the RSI printing a reading of 73, above the overbought trigger level of 70. The 10 day moving average has crossed above the 50 day moving average, which means a short-term uptrend is now in place.

Volumes and Open Interest Have Accelerated

The volume and open interest of Bitcoin futures contracts on the CME have seen an upward trend. The volume of futures contracts tells you the intra-day volume of a contract. The Open interest tells you how many contracts are open with both long and short positions.

Over the past month, volumes of futures contracts per day have increased from an average of 9,000 per day up to 12,000 per day, a robust 33% increase. Open interest has climbed from 7,000 per day to 12,000 per day. This increase in the volume and open interest of Bitcoin futures contracts on the CME may suggest that the market is preparing for larger trading volumes once an ETF is available to the general public.

The Bottom Line

Proshares is introducing a Bitcoin Strategy ETF, which will attempt to mimic the returns received by holding CME futures contracts. This offering will be the first time that U.S. registered accounts will hold a stock-like product that moves in tandem with Bitcoin. The ETF will not hold digital bitcoin that can be spent; it will only hold Bitcoin futures contracts. Despite its release during the week of October 18, 2021, registration and trading are expected to happen immediately. Since many pension funds and mutual funds do not provide access to bitcoin via a digital wallet, this will be the first time many investors have access to a new asset class.

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