This was a huge week for crypto. Especially for bitcoin.

On Wednesday, a new bitcoin exchange-traded fund (ETF) debuted. It’s called ProShares Bitcoin Strategy ETF (NYSE: BITO).

Now, technically, this is a bitcoin futures ETF. This means that rather than buying bitcoin outright, the fund invests in futures contracts.

Regardless, investors were excited. The ETF saw a billion dollars of trading on the first day, which was the second highest of all time. So, you can see there’s a ton of optimism floating around.

And there should be. This is a truly exciting development for crypto.

In fact, it’s a bigger deal than most people realize. It means regulators are finally loosening up on cryptocurrencies. And that means there’s more demand and money coming.

I go into all the details in today’s Market Insights video. (I also discuss whether it’s better to buy the ETF or bitcoin itself.)

(If you’d prefer to read a transcript, click here.)


Hey everyone, thanks for tuning in to this week’s edition of Market Insights. I’m Steve Fernandez.

Today’s topic I’m going to cover is the bitcoin exchange-traded fund (ETF) that just launched in the U.S. It just started trading on Wednesday, so it’s pretty timely. I don’t want to talk so much about the ETF or even the mechanics behind it, but more so about why you should be excited about this event, why I’m excited and what this really means for the crypto market moving forward.

Before we get started, if you haven’t subscribed, definitely subscribe. If you like our content, hit the like button — and if you don’t, leave a comment. We take that very seriously.


Info on the New Bitcoin ETF

So, the ETF that launched is not actually a bitcoin ETF. It’s actually a bitcoin futures ETF. It’s called the ProShares Bitcoin Strategy ETF, symbol BITO. Because it invests in bitcoin futures, it may not directly impact the price of bitcoin.

Nonetheless, investors were excited about this. The ETF actually saw a billion dollars’ worth of trading volume on its first day. That’s the second highest of all time, so there’s a lot of optimism around this event. Even the price of bitcoin did rally in anticipation of this, and even after, this ETF began trading. You can see here that bitcoin touched almost $67,000 on that Wednesday, and that put it up over 60% in a month.

Bitcoin’s 1-Month Price Performance

bitcoin price chart

Again, I don’t see this as an event that would directly impact bitcoin’s price — but I do see it as bullish, and I’ll talk to you about that here in a second. So, why would investors be excited?

Well, this is an investor sentiment event. In general, this could attract new investors to bitcoin in some capacity. You have new investors that want to gain exposure to bitcoin that weren’t able to do so before, whether that was because they have a brokerage account or a retirement account, or even an institution, that wasn’t able to invest in bitcoin.

As some of you might be aware, there is currently a bitcoin tradable product in the U.S. markets called the Grayscale Bitcoin Trust (OTCMKTS: GBTC). That’s been around for several years now, but it’s not actually an ETF. It’s actually an exchange-traded note (ETN).

That’s actually prohibitive to some institutions. They aren’t able to invest in that. And even if you are, it has like a 2% fee associated with it, and it doesn’t even trade up to the value of its holdings. There’s definitely some risk and some flaws with that product.

But with the new ETF, now you can invest in bitcoin futures. Because it’s an ETF, new investors can buy it, which is good news for bitcoin and crypto in general. That’s why investors might be excited.


More Options and Higher Valuations Ahead

I’m excited because this is a signal to me, a signal that there is a spot ETF not too far away. A spot ETF is really just one that buys the physical underlying asset. In this case, there would be an ETF that goes out and buys physical bitcoin as opposed to the ETF we just had launch here, which buys futures.

Now, because it buys underlying assets, physically, that’s going to drive up the price of the underlying asset when new money flows into the fund. If there is a spot bitcoin ETF — or any spot ETF, for that matter — because a fund is forced to buy the assets in that fund and it drives up the price, it can distort the market cap or the value of that asset. It can also attract momentum investors, or even just spur a momentum frenzy as money flows into the ETF.

There’s actually a phenomenon going on where ETFs in general create much more value than they actually receive. For example, I saw a study where, for every one dollar that enters an ETF in terms of a net inflow — meaning one dollar more than goes out comes in — well, that’s going to create $4 in value for the underlying assets.

To put this into perspective, if an ETF has $500 billion in net inflows, that could potentially result in $2 trillion in value for the assets it holds. That’s a huge multiplier and part of the reason we’ve seen such a rally in the U.S. equity markets, especially like the S&P 500 Index heavyweights.

If you caught all that, good. If you didn’t, just know that it really will boost demand for bitcoin if we have a spot ETF.

I’m even more excited that this is a U.S. ETF — the reason being that 70% of global ETF assets are held in U.S. ETFs. They’re the heavyweights in the world. They have about $5.5 trillion in assets. That’s a big number.

I know that about 70% of institutions want to gain exposure to crypto in some capacity in the future, so it’s not implausible to think that about 10% of that could make its way to crypto in the next three to five years.

If there is a 10% share of ETF assets in crypto, that’d be about $500 billion. And again, if there’s a $500 billion net inflow, you can assume that cryptos’ market value, the entire crypto market, could go up 2X, 3X, 4X — so trillions of dollars. If it’s a $2 trillion increase, that’s double the amount of the crypto market now, so a big increase.

I think that bitcoin spot ETF would be the first ETF that we see trading the GBTC ETN that I talked to you about — the Grayscale Bitcoin Trust. Ironically, it actually filed to convert its fund structure into an ETF this week, so I know that there is a push to get that done. We’ll see if regulators respond.

After that happens, I expect that Ethereum will have at least a futures ETF, and likely a spot ETF just because there’s already an Ethereum futures contract that’s publicly traded.

Really, in the big picture, I expect that we’ll have an index of crypto assets kind of like the S&P 500. There might be like the Crypto 500 or the Crypto 100 that you could actually go out, buy an ETF on and hold those underlying assets indirectly.

And again, if we see a lot of money go into that fund, which I expect that we would, it would really drive up the price of the underlying cryptos — probably more than all of us can imagine. So, pretty exciting stuff that there are ETFs on the way.


Be Careful With BITO

I do want to caution you about this one, BITO, the futures ETF that just launched. Because it doesn’t actually buy the underlying bitcoin and it buys a futures contract, you are introducing a new variable called a roll yield. In short, that’s really just a lag on the return of the fund because it’s a negative roll yield.

That happens because these futures ETFs buy the closest-to-expiration contract. Then, as that approaches expiration or it’s about to expire, the fund goes out and sells it. Because the fund is forced to buy it initially, it drives up the premium for that contract. The fund pays a little bit more than it’s probably worth. And then when it goes to sell it, it has to buy a new one and do the same thing.

So, it actually creates kind of a negative effect on the total return of the fund. In most cases, you’re better off buying the underlying asset as opposed to holding some sort of futures ETF, as you will.

So, big picture: You probably want to avoid this ETF and just buy the physical or spot cryptos, which we can walk you through if you need help. There are a lot of options out there.

Some key takeaways here: I want to just tell you that this is a huge development, bigger than most people realize. It’s not because of the futures ETF. It’s because regulators are loosening their stances on crypto ETFs, and that just means new money and new demand for cryptos is coming.

Now, if you liked our content, again, like the channel and definitely like the content. Definitely subscribe to our channel. We will get back to you and talk to you next week.



Steve Fernandez

Research Analyst, Strategic Fortunes


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