by Jack Fischer.
Tuesday, October 19, marked the official launch of the new ProShares Bitcoin Strategy ETF (BITO). The long-awaited cryptocurrency ETF marks the first of its kind to list on a U.S. exchange. BITO was listed on the New York Stock Exchange (NYSE) following a 75-day review by the SEC. Several other similar futures-based products are due to launch over the next few weeks. The CEO of ProShares, Michael Sapir, emphasized this milestone by saying, “1993 is remembered for the first equity ETF, 2002 for the first bond ETF, and 2004 for the first gold ETF. 2021 will be remembered for the first cryptocurrency-linked ETF.”
BITO is a futures-based ETF that does not invest directly in the highly volatile cryptocurrency—instead, it holds futures contracts that will essentially track its value. A futures ETF is unique from a spot-market ETF. BITO invests in bitcoin (BTC) futures contracts that will purchase the cryptocurrency at a future date for an agreed-upon price. While futures contracts are correlated with underlying asset prices, they might not exactly mirror one another. Futures contracts are primarily used as hedging and speculation investments on commodities such as oil, gold, and corn. The coming wave of cryptocurrency funds in the U.S. will provide exposure to a wider market that may not trust or be willing to set up a digital wallet as well as maintain their own private key.
Over the first two days of trading, BITO attracted $589 million in new money. To give context, that registered as the third-largest net inflow over the past week under taxable bond ETFs and would have been the fourth largest when compared to equity ETFs. That’s just for the first two days of trading! This cryptocurrency fund, as well as the similar products planning on launching, will fall under the Lipper Classification Alternative Managed Futures Funds (MFF). MFF holds funds that invest primarily in a basket of futures contracts with the aim of reduced volatility and/or positive returns in any market environment. Investment strategies are generally based on proprietary trading strategies that include the ability to go long and/or short.
With the help of BITO, Lipper Alternative Managed Futures Funds realized their third-largest weekly inflow of all time and the largest total since July 2016. The classification is on pace to post its first annual net inflows in five years.
While net inflows will most likely be significant in the coming months as new cryptocurrency funds continue to launch, it should be noted that SEC Chair Gary Gensler has criticized the crypto industry to the Senate, calling it “a Wild West”. Bitcoin fell about 2.8% to around $61,312 on the day—at the time of writing—after hitting record highs earlier in the week. BITO is reportedly close to the CME limit of 2,000 front-month futures contracts for October and has already started buying futures contracts expiring in November.
Learn more about weekly flow trends here.
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