After the splashy launch of two bitcoin futures ETFs, many potential competitors are pressing pause on their own planning strategies.
Invesco was quick to deprioritize its effort to launch a competing product, Van Eck has delayed its own bitcoin futures ETF, and Bitwise announced this week that the company was pulling its application while continuing to push for a spot bitcoin ETF.
The consensus wisdom is that that the latter product, and not its futures-based cousin, is really what ETF investors prize. That said, the Securities and Exchange Commission appears in no hurry to allow one of the many prospective spot bitcoin ETFs to go before traders.
Bitwise CIO Matt Hougan cited the tendency for bitcoin futures to underperform spot bitcoin and decreased liquidity in the futures market in withdrawing from the bitcoin futures ETF space.
‘This will ease over time, but for now, it’s added yet another expense,’ Hougan wrote on Twitter. ‘The result? Costs on top of costs, plus added complexity.’
The ProShares Bitcoin Strategy ETF (BITO) beat everyone to launch and surpassed $1.2bn in assets within a few days after its October 19 debut; it now sits at about $1.4bn, per Morningstar. The other option, the Valkyrie Bitcoin Strategy ETF (BTF), quickly crossed the $50m threshold but has not seen the same success; it’s at $61.2m as of Thursday.
The influx of assets may have been slowed by some early bumps in the road. Already, observers have raised concerns about liquidity and the long-term viability of the product type. Meanwhile, in a separate move, the SEC reportedly put the kibosh on Valkyrie’s bid to launch a leveraged bitcoin futures product.
One obvious problem for bitcoin futures ETFs is their red-headed stepchild status compared to the nonexistent yet vaunted spot bitcoin ETF. But for ProShares’ Simeon Hyman, the initial week post-launch has been exciting and worth his optimism.
‘We really were proud to be first and we think this is a this is a landmark,’ Hyman said. ‘This is up there with the first stock ETF, the first bond ETF, first gold ETF, so it’s fun to be part of a lot of conversations.’
The SEC’s decision to allow the former to launch while continunig to postpone approval of the latter has been described as a compromise, with officials like SEC Chair Gary Gensler pointing to the futures version’s placement with the Commodity Futures Trading Commission’s regulatory purview and the investor protections accompanying that oversight. President Joe Biden’s nominee to run the CFTC, Rostin Behnam, already has asked Congress to give the futures commission more authority to regulate cryptocurrency.
Futures shock?
While ProShares appears to have cornered the market for now, questions remain about investors’ appetite for more bitcoin futures ETF exposure.
Observers also have voiced concerns about liquidity, futures contracts limits and rollover costs. And the fact remains that BITO has fallen off its initial pace of inflows after a legendary start.
Bloomberg has reported that futures commission merchants, or FCM, have faced a crunch for years, creating a ‘concentration risk’ in a shrinking sector. The rush to launch bitcoin futures ETFs appears to have exacerbated the pressure on that industry, tripping up prospective issuers in the process.
Meanwhile, investors looking for a standard bitcoin ETF may be in a holding pattern for years to come, longtime ETF observer Dave Nadig said this week.
‘I think there is literally zero chance of passage in the next three years,’ Nadig, director of research at ETF Trends, told CNBC.
