Crypto ETFs have arrived


Jack Derwin

October 20th 2021 3 minute read

If there was still any doubt, Bitcoin has now undoubtedly broken into the investment mainstream.

On Tuesday, the ProShares Bitcoin Strategy ETF (BITO) became the first Bitcoin-linked ETF to land in the United States.

As if to underline the significance of the listing, it stirred up an almost unprecedented trading frenzy. On its first day on the boards, more than 24 million shares of BITO changed hands and almost US$1 billion flowed through it.

It ranks the ETF as the second-most traded U.S. fund on record, only trumped by Blackrock’s Carbon Transition Readiness ETF which represented another similarly historic moment for markets when it listed earlier this year.

Available on Superhero, BITO doesn’t actually hold Bitcoin but, like most commodity ETFs, is futures-based.

So how does BITO work?

The Bitcoin Strategy ETF doesn’t trade or hold digital assets directly, but instead trades futures – essentially betting on where the price of Bitcoin is going.

It means BITO investors are trading on Bitcoin fluctuations and aiming to profit on those price swings, without ever owning it themselves.

What’s the big deal?

Given that futures trading can incur extra costs, a futures ETF is unlikely to convert those who are content to buy and sell crypto on online exchanges. After all, they have for years simply been able to buy, hold and sell it.

But the reason BITO is so significant is that it signifies a major step towards crypto being accepted in the largest and most influential market in the world.

As the enormous inflows on just day one indicated, it also is likely to significantly increase the amount of money entering the crypto space.

Operating on a regulated exchange, the ETF also opens up access to digital assets to a broader market of buyers, with large institutional funds now able to gain exposure to it.

Why are crypto ETFs taking so long?

The crux of the cryptocurrency story is that regulation remains a key obstacle for the market generally. The lack of rules in countries around the world, and the archaic treatment of them, can make it difficult to invest and trade.

The fact that BITO doesn’t hold crypto directly is thought to be one of the main reasons the U.S. financial regulator the SEC gave it the green light in the first place.

It’s also why there are now a number of crypto-linked, or blockchain ETFs, popping up in the United States and Australia for example, but not one trading the genuine article.

But for an underlying technology and asset class that is still relatively young, progress is being made.

The listing of BITO may just attest to that.

What other options do I have?

BITO isn’t the first crypto-adjacent ETF available on Superhero.

Listed in Australia, the Securities Fintech and Blockchain ETF (FTEC) invests in fintechs and other companies poised to take advantage of emerging blockchain technology.

In the U.S., the Amplify Transformational Data Sharing ETF (BLOK) meanwhile holds some of the biggest players overseas, including Coinbase (COIN), PayPal (PYPL), Square (SQ) and MicroStrategy (MSTR). 

Outside of ETFs and the aforementioned companies, there are a handful of other stocks that can provide exposure for investors.

Riot Blockchain (NASDAQ: RIOT),  is a Bitcoin mining company, which also holds interests in digital currency exchange Coinsquare among others. Alternative miners include Canaan (CAN) and HUT 8 Mining (HUT).