Predicting The Future Of US Bitcoin ETFs From Others That Have Come Before It

  • The first Bitcoin ETF has officially started trading in what is generally regarded as a victory for the community.
  • Looking at the patterns of Bitcoin ETFs from other countries, certain hypotheses into the future can be made.
  • Investors have a huge appetite for Bitcoin spot ETFs and will generally gravitate towards them over a futures-based product.

Bitcoin is taking its place as an asset class to be reckoned with after the SEC approved the first Bitcoin ETF in the US. Investors remain curious regarding the future of the foray into ETFs but Canada’s experiment is quite revealing.

Canada’s Blueprint

In March, Canada made history by launching the first Bitcoin ETF in North America which increased the agitations for the US to follow suit. The first was the Purpose Bitcoin ETF and according to the firm’s statement, “the ETF will invest directly in physically settled Bitcoin, not derivatives.” This is a major distinction from the one approved by the US SEC that is a futures-based ETF, but still analogies can be made.

The launch of the Purpose Bitcoin ETF opened the floodgates for the approval of more ETFs in Canada such as 3iQ Coins and CI Galaxy Bitcoin within weeks. It can be safe to say that the SEC giving the greenlight to ProShares Bitcoin Strategy ETF will be the beginning of a wave of approval of ETFs. Already, the second Bitcoin ETF from Valkyrie Bitcoin futures ETF is scheduled for launch on October 22nd with applications from Invesco and others reportedly touted to gain approval.

Purpose has gone on to notch $1.2 billion in assets while Canada’s Bitcoin futures ETF only has $7.6 million while making only 0.3% of the market share. This is a huge indicator that ProShare’s futures ETF may not prove to be popular amongst investors. Already, it has received a slew of criticism for not being able to accurately track the price of the asset and may be subject to the contango effect.

The ETF markets in the US may become polarized with the bulk of retail traders preferring one while institutional investors preferring the other. This pattern holds for Canadian bitcoin ETFs. According to reports, the bulk of Purpose ETF holders are unknown while CI Galaxy comprises mostly institutional investors.

Spot ETFs Could Happen In The US

Bitcoin spot ETFs are preferred over futures around the world and their staggering adoption could sway the SEC to change its stance. Aside from Canada, Brazil, Germany, and Switzerland are among the countries that have launched their Bitcoin spot ETF to acclaim.

The meteoric growth of these funds is not far-fetched as they offer a range of options to potential investors. Price tracking is accurate in spot ETF and is a cheaper alternative for investors. Matt Hougan, CIO of Bitwise noted that future-based ETFs can cost investors an extra 5% annually to roll into a new futures contract.

Gary Gensler stated that futures ETFs offer investors increased levels of security which is why the SEC seems satisfied and has granted approval. Perhaps, the SEC is testing the waters with a futures-based ETF before eventually approving a Bitcoin spot ETF. Already, Grayscale has filed an application that will seek to convert its Grayscale Bitcoin Trust to a spot ETF.

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