What impact will the US SEC's approval of the BTC futures ETF have on the cryptocurrency industry?

Written by: Footprint Analyst Helen ([email protected])

Date: October 19, 2021

background

Recently, many mainstream US media have reported that the US SEC (Securities and Exchange Commission) is about to approve the BTC futures ETF. Bloomberg and the Wall Street Journal have also estimated the time for the first quasi-BTC futures ETF product in the United States, that is, the US fund issuer ProShares will issue BITO (trading code) on Tuesday (October 19). As of press time, it has not been officially issued; other institutions are also on the way to issue:

● First-tier fund issuers Valkyrie Investments, Invesco and VanEck will follow;

● The second tier, Galaxy Digital, AdvisorShares, Bitwise, BlockFi and ARK Investment Management, may issue their shares one or two months later.

What will happen to the BTC price after the issuance? What will be the public’s attitude towards the ETF?

On February 18, 2021, North America's first Bitcoin ETF, Purpose Bitcoin ETF (code BTCC), was officially listed on the Toronto Stock Exchange in Canada. The total trading volume on the first day was 9.3 million shares, with a total transaction value of US$145 million, making it one of the top ten most actively traded securities on the Toronto Stock Exchange that day.

At the same time, the price of BTC has been soaring. On February 19, the day after the listing, at 16:00, the price of Bitcoin was 51,675.39 USD per coin. Since falling into a slump in May, the price of BTC has recently returned to 50,000, and even broke through 60,000 recently, which is related to the good news of ETF.

When the Canadian ETF BTCC was issued, everyone expected that the US BTC ETF would not be far away. Sure enough, after 8 years of persistent applications from various institutions, the US is really going to list it this time. Although the first BTC futures ETF approved by the US this time is no less popular than the Canadian BTC spot ETF.

In fact, the entire market is already on the move, as leading trendsetter Grayscale Investments has confirmed its plans to convert its Bitcoin Trust (GBTC) into a Bitcoin exchange-traded fund (ETF).

What exactly do you buy when you buy BTC futures ETF?

Simply put, an ETF is a synthetic Bitcoin formed by a pile of cash plus a derivative that causes the cash to fluctuate with the price of Bitcoin. The author analyzes that it is somewhat similar to a stock fund.

If Bitcoin goes up, the ETF will have more cash to invest in money market securities. If Bitcoin goes down, the ETF will have to sell some of those securities to hand over some cash. If Bitcoin doubles, the ETF’s cash more or less doubles; if Bitcoin goes to zero, the ETF’s cash more or less disappears.

What is the difference between BTC futures ETF and BTC spot ETF?

Features of BTC spot ETF:

1. Bitcoin itself has the characteristics of spot, but unlike cash deposits, it requires a different set of compliance custody and private key security management solutions from national financial institutions;

2. There is no complete secondary platform in the market that can buy and exit at a fair price.

This is also the reason why the U.S. SEC has not approved the BTC spot ETF in the early stage. The regulatory agency first tried the BTC futures ETF, which not only expressed its support for the development of BTC and did not miss the blockchain dividend, but also avoided taking too big a step and causing unexpected situations that could not be resolved.

In a BTC spot ETF, the issuer needs to actually purchase Bitcoin and create smaller shares, so the issuer is responsible for buying or selling the necessary Bitcoin and storing it safely. In Canada's BTCC, the issuer Purpose Investments stores the Bitcoin it holds offline at Gemini Trust.

Features of BTC futures ETF:

In a BTC futures ETF, the issuer does not hold actual Bitcoin, but instead lays the foundation for the stock by holding a position in Bitcoin futures contracts.

According to Bloomberg Opinion columnist Matt Levine; When we invest a sum of money to buy BTC futures ETF, what will the Bitcoin ETF do with your money? The answer is that it will put about 70% of the money into money market securities, Treasury bills or senior commercial paper or anything else.

For example, if we put $60,000 into a Bitcoin ETF, it will put about $20,000 on the futures exchange to collateralize one synthetic Bitcoin, and will keep another $40,000 in cash, earning a little interest. Meanwhile, the person selling the synthetic Bitcoin must come up with about $80,000 to (1) buy actual Bitcoin and (2) post margin on the futures exchange itself.

Summarize

Once the BTC futures ETF is officially listed in the United States, it will become a milestone event in the global blockchain field. The U.S. regulatory authorities have legally recognized the legal status of Bitcoin as a financial product. The United States will have a greater influence on the price of Bitcoin, and the price of Bitcoin will rise to a new height due to this event. Let us wait and see the subsequent developments.

References:

1. Bitcoin ETFs Are Almost Here https://www.bloomberg.com/opinion/articles/2021-10-15/bitcoin-etfs-are-almost-here

2. What is the difference between Bitcoin futures ETF and spot ETF? https://www.cngold.com.cn/202110163714289961.html