The first Bitcoin ETF in the United States, the ProShares Bitcoin Strategy ETF (US stock code: BITO), was officially listed on the New York Stock Exchange on October 19, 2021. The stock market in the United States is the world’s largest and an important part of the global economy; it is also the most open and mature financial market in the world, as well as one of the fastest growing. Inevitably therefore news about US stocks will attract the interest of investors all over the world. “We believe a multitude of investors have been eagerly awaiting the launch of a bitcoin-linked ETF after years of efforts to launch one,” said ProShares CEO Michael L. Sapir. “BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider and creating a bitcoin wallet.”
ProShares’ BITO is a Bitcoin exchange-traded fund (ETF). BITO’s net asset value per fund unit is $40, according to its data. This price can be considered BITO’s starting point. Purchasing BITO does not imply that you directly own Bitcoin. Instead, it invests in Bitcoin futures contracts on the Chicago Mercantile Exchange (CME). As a result, the price trend of ETFs and Bitcoin will deviate, and returns will be inconsistent. It should be noted that when investing in ETFs, you should pay close attention to an important indicator: the risks posed by positive spreads (Contango) and backwardation spreads — backwardation is when the current price of an underlying asset is higher than prices trading in the futures market.
Investing in ETFs still carries risks. For example, the price of crude oil futures fluctuates considerably in 2020, and the price of some crude oil futures ETFs has plummeted, causing trading to be suspended at times. Holding a commodity futures ETF is not the same as holding a commodity spot, nor is purchasing a Bitcoin futures ETF. However, because BITO is a formally regulated trading fund under the SEC, BigONE believes that purchasing BITO can help to mitigate the risks associated with policy changes.
What is an ETF?
ETF is short for Exchange Traded Fund. It is also known as a ‘passive fund’. It is a mutual fund that is traded on a stock exchange. An ETF is made up of three components: an index, a stock type, and a fund. In other words, an ETF is essentially a fund that tracks an index while also being bought and sold in the stock market. To put it simple, “An exchange traded fund (ETF) is a basket of securities that trade on an exchange just like a stock does,” according to Investopedia.
The most significant advantage of ETFs is their ability to diversify risks effectively. For example, if there all 100 stocks in an ETF then they all cannot drop in price on the same day. As a result, the investment portfolio established by this ETF will not suffer a significant drop either.
How to buy ProShare’s BITO?
Those considering investing in BITO for the first time may be a little conflicted. Because ETFs are stock exchange funds, investors frequently struggle to decide whether to buy from the securities stock market or the bank fund market. BigONE recommends that you check the price forecast of this BITO ETF before using it to trade Bitcoin futures ETFs. The ProShares fund provides regulated Bitcoin exposure, but it comes at a cost to investors. Investing in BITO funds will incur a 0.95 percent annual management fee.
Investor participation in the Bitcoin futures market and Bitcoin trading will result in a significant increase in investor demand. Analysts from top investment firms anticipate that BITO will begin with a bullish bias. On October 19, 2021, BITO made its debut on the New York Stock Exchange and rose by 4.8% to close at $41.94. All interested investors can purchase it through platforms that support ETF trading, just as they can purchase stocks. BigONE has compiled a list of BITO trading platforms designated by ProShares below:
⦁ eToro: eToro is a trading platform that supports a wide range of assets. Its social trading feature is ideal for newcomers who want to get started quickly, by allowing anyone to copy other successful traders.
⦁ Webull: Webull is a registered stock brokerage firm based in the United States. It is SEC-registered and provides users with all the tools required for independent investment.
⦁ Fidelity: Fidelity caters to North American investors, manages many mutual funds under its brand, and offers fund allocation and investment consulting services.
To reiterate, the ProShares fund will primarily invest in Bitcoin futures rather than directly in the cryptocurrency itself. This means that the fund will invest in the promise of future digital currency pricing. If investors are unfamiliar with cryptocurrencies but want to gain exposure, the ProShares ETF should be their first choice. BITO ETF is currently one of the most popular assets on the Fidelity platform.
Bitcoin ETFs or spot Bitcoin?
Investors who understand and are willing to deal with the volatility of the cryptocurrency market and those who have strong faith in cryptocurrency projects based on blockchain technology tend to choose to invest directly in cryptocurrencies. Although BITO appears to be a good idea, some cryptocurrency supporters who want to trade Bitcoin directly believe that investors can now invest in Bitcoin using cash and that investing in BITO will add additional costs to the user’s final investment. BigONE also recommends that investors learn about the product they intend to invest in and its past performance before investing. What you should know is that Bitcoin has increased in value more than 26.4 million times since its inception, reaching a recent high of $66,000. However, it is still unclear whether BITO’s growth rate will be faster than Bitcoin’s.
“The launch of the first bitcoin-linked ETF in the U.S. will bolster the broader crypto market and help an entirely new investor class experience the benefits of bitcoin as a legitimate asset,” said Anthony Bertolino, VP of growth at iTrustCapital, in a CNBC report following the ETF launch. “However, a derivatives-based bitcoin ETF is not where we want to be long-term. One of the most attractive aspects of bitcoin is that it’s a bearer asset with a highly liquid 24/7 spot market. Investors will almost certainly come to desire a spot based, physically backed bitcoin ETF and 10 years from now, I would even expect some of the bitcoin ETFs to allow physical redemption for those that want it.”