Bitcoin at the peak of popularity: investors are constantly looking for new ways to participate in the crypto currency revolution, and the emergence of futures from well-known exchanges provided them with a unique opportunity to play at the growth of its value. However, many still remain aloof, waiting for the emergence of more familiar and less risky tools for working in the crypto currency market.
Perhaps their desires will soon come true. Exchange investment funds (ETF) will open to everyone who wants access to the world of crypto-currency. However, their risks can far exceed the dangers of existing instruments, so investors should be discreet, including bitcoin-ETF in their portfolios.
Who will start bitcoin-ETF?
Immediately after the appearance of bitcoin futures, the New York Stock Exchange asked the Securities and Exchange Commission (SEC) to authorize the listing of two exchange funds associated with bitcoin. ProShares Bitcoin ETF and ProShares Short Bitcoin ETF are not yet available to investors, but if the SEC approves the listing, trade will start early next year.
ProShares - one of the 10 largest management companies in the US - actually filed for registration of its funds in September. This happened long before the appearance of bitcoin futures, but ProShares foresaw that before the end of the year the largest stock exchanges would offer derivatives for crypto-currencies.
Other companies, including VanEck, First Trust and REX Shares, also filed for registration of their own EFT, based on bitcoin futures.
How will ETFs be arranged and how will they change the market?
Funds ProShares will be arranged on the model of other ETFs, tied to futures contracts. The management team will open positions on bitcoin futures that meet the investment priorities of each fund. The purpose of ProShares Bitcoin ETF will be to ensure the growth of the value of shares, corresponding to the dynamics of futures. ProShares ambitiously states that it will work to ensure that the one-day and long-term results of the fund coincide with the dynamics of the underlying asset.
ProShares Short Bitcoin ETF target will be reverse: the value of the shares will grow along with the drop in prices for bitcoin. In this case, ProShares cautiously says about the coincidence of the daily results, while the long-term performance of the fund may differ from the behavior of bitcoins.
The presence of ETF will significantly increase the number of investors wishing to earn on the crypto currency. Currently, there are tools like the Bitcoin Investment Trust, but they have their own structural problems that complicate the pursuit of crypto currency. Similarly, digital shares do not always repeat the movement of basic crypto currency.
How risky will bitcoin-ETF be?
Unfortunately, bitcoin-funds will be extremely risky, and therefore unsuitable for most investors. ETFs based on futures do not always manage to track the dynamics of the underlying asset, as the value of derivatives may differ from the spot prices of the underlying asset. For example, at present, March bitcoin futures cost $ 500 more than the January futures. Similar deviations in commodity markets are the norm, but they can damage ETF yields compared to the results of the underlying asset.
In addition, the bitcoin futures market is not as large as other commodity markets with their own ETFs. The average daily trading volume of bitcoin futures does not exceed several thousand contracts. For comparison, the daily turnover in the oil market is several hundred thousand contracts. Low volume means a serious risk of sudden price changes, which is exacerbated by the high volatility of bitcoin itself.
Is it worth buying bitcoin-ETF?
The attraction of bitcoin-funds is that they allow you to invest in bitcoin without buying the crypto currency itself. For those who believe in its future, this will be a sufficient incentive for buying an ETF. The rest of investors should be prudent and wait for a while, making sure that the funds manage to track prices for bitcoin. If this does not happen, it's better to stay away from them and look for more reliable ways to earn money on a cryptom.
