Wall Street opened its doors to the crypto industry this week, as the first US exchange-traded bitcoin fund attracted more than $ 1 billion in cash for investors and sent the price of the largest digital currencies. to new highs.
Similar vehicles are already being traded elsewhere, but the launch of a crypto ETF on the world's largest stock market represents a major milestone for crypto advocates after eight years of lobbying regulators.
For the first time, conventional investors can now hold a US-listed bitcoin-linked security in their portfolios alongside traditional financial assets like stocks and bonds.
“This is the fastest ETF to reach $ 1 billion in assets. . . From an asset growth and trading volume perspective, this is unprecedented and a sign of stifled demand, ”said Todd Rosenbluth, CFRA director of ETF and mutual fund research.
The debut well received The bitcoin ETF shows how traditional finance companies are competing to snag a slice of the digital asset industry. It also highlights the recognition among many financial bodies that the sector has become too big and growing too fast to ignore.
Retail investors accounted for only about 12-15 percent of net purchases in the ProShares ETF in the first two trading days, pointing to significant interest among institutions, according to data from JPMorgan. Another similar vehicle sponsored by Valkyrie Funds was launched on Friday, three days after the ProShares product, in a move that analysts expect will be repeated many times.
Other announcements this week, including a highly successful fundraiser round by crypto exchange FTX backed by a group of top-line investors, they have added to the hype surrounding digital assets.
These signs of growing interest, as well as a rise in professional traders using crypto as a basis for sophisticated market bets, helped propel the price of bitcoin above $ 66,000 on Wednesday for the first time before falling back to around $ 61,000 on Friday. Shares of Coinbase, the largest publicly traded market, soared more than 10 percent in the days leading up to launch.
However, many analysts say that the launch of the ProShares ETF is just the beginning of a much longer battle to convince the Securities and Exchange Commission that a product that provides a direct connection to largely unregulated cryptocurrency markets should traded on the Wall Street stock exchanges.
For the SEC, the deciding factor in allowing the ProShares ETF to move forward was that the vehicle has futures contracts traded on the Chicago Mercantile Exchange, a fully regulated venue, rather than directly digital currencies. Cryptocurrencies are generally bought and sold through a wide variety of places in a market that has the chairman of the commission, Gary Gensler. referred to like the "Wild West".
"What you have here is a product that has been supervised for four years by [the Commodity Futures Trading Commission] and that is wrapped up in something within our jurisdiction. . . we have some capacity to incorporate it into investor protection, "Gensler said in an interview with CNBC.
Interactive Brokers, the retail broker, unveiled cryptocurrency trading to financial advisers on Monday, but Thomas Peterffy, its chairman, was more circumspect about the value to investors of owning the ProShares fund or similar funds.
Peterffy, who helped accommodate Reporting on Wall Street in the 1970s when he used machines to help calculate the value of securities and options, he said that the only usefulness of cryptocurrencies was an alternative when the monetary or banking system experienced trouble.
“I believe that when such problems occur, these ETFs will get an incredible discount on the value of the currencies. So I think it is of no use. As long as people don't think about it, the price will move with the price of bitcoin. "
Others pointed out that an ETF that is based on futures can unlink from the asset it is supposed to track. USO, the $ 2.9 billion oil ETF, often diverged significantly off the price of US crude over the past decade.
One factor is "roll over cost", when the fund manager regularly switches to a new futures contract when the old one expires. This could be more expensive if the market expects the price of bitcoin to increase in the future. A situation where the futures price is higher than the spot price could mean that the ETF is falling short of the returns that would come from holding bitcoin at 7 percent a year, said Andy Kapyrin, Co-Chief Investment Officer at RegentAtlantic. , a dollar 5 bn registered investment advisory group.
That makes the product more expensive for investors who want to hold a long-term position, Kapyrin added. "This will keep it relegated to short-term trading portfolios, rather than long-term holders," he said. It is "a no-go for advisers" to recommend long-term positions to hold, but he admitted it was "a good product to trade."
That's why various asset managers are already pushing for the SEC to give the go-ahead to initiate funds tied directly to crypto prices. Some ETF sponsors also pulled out of their own futures-based products.
Invesco said it would focus on getting approval for an ETF containing digital tokens. Just before Wall Street went public on Tuesday, digital asset manager Grayscale Investments announced plans to convert its $ 40 billion Bitcoin Trust, the world's largest cryptocurrency investment fund, into an exchange-traded fund that will own digital tokens directly.
"There is a bit of euphoria in the industry that we now have an ETF, but it is the first step," said Dave LaValle, Global Head of ETFs at Grayscale. "Ultimately, the goal is for investors to be able to choose between futures ETFs and physical bitcoins."
It may be a dream many years from now. Brett Harrison, president of the US crypto derivatives exchange FTX, said the SEC's decision this week not to get in the way of the ProShares fund is likely the first in a series of regulatory dominoes to fall.
"I think the SEC wants to see spot crypto exchanges included in some regulatory framework before agreeing to that," he said.
SEC Chairman Gensler call US lawmakers by proxy to oversee cryptocurrency trading platforms, and he wants companies to register with the agency.
The SEC is also in the midst of a tense legal debate over whether digital currencies should be registered as securities. Many leading crypto players challenge that view.
"It will be highly unlikely that a direct bitcoin or any other type of crypto fund will be approved anytime soon," said Amy Lynch, founder and president of FrontLine Compliance, a regulatory consultancy. "Right now, the question is exactly what kind of format of these assets will be considered a security."
