Bitcoin nears record thanks to exchange fund that should make cryptos mainstream

The first fund to use bitcoin as a gauge has gained access to the New York Stock Exchange.Image REUTERS

The stock market debut of the ‘Bitcoin Strategy ETF’ of the American asset manager ProShares is widely seen as an important step in the legitimization of the digital currency, which still causes many concerns among regulators. The US stock watchdog SEC, whose boss Gary Gensler recently compared the world of cryptocurrencies to the lawlessness of the Wild West, could have put a stop to the bitcoin fund until Tuesday, but has not done so.

In anticipation of its debut, bitcoin rose to $62,000 in a matter of weeks, close to April’s record high of $65 thousand, or nearly $56 thousand. In the months after the record, the erratic cryptocurrency lost almost half of its value, but it has been on the way up again since the end of July.

“This is a new step in making bitcoin accessible,” says ING economist and crypto specialist Teunis Brosens. ‘It means that more parties can invest in bitcoins, or at least in a fund that tracks bitcoins.’

Index Followers

ETFs, or funds that can be traded on the stock exchange, follow an index – think of stock market indicators such as the AEX or the Dow Jones – and are therefore also known as index trackers or index followers. They can also follow a basket of investments in a specific sector or region, for example with shares in oil companies, or for example Chinese tech companies. ProShares’ highly anticipated bitcoin ETF tracks the price of bitcoin futures contracts as traded on the Chicago Mercantile Exchange, the world’s largest derivatives exchange.

It is thanks to this carom – investors in the ETF do not invest their money directly in bitcoins, but indirectly, through the bond of futures contracts in bitcoins – that the investment vehicle of ProShares can be approved by the Securities and Exchange Commission (SEC). Unlike bitcoins, the futures contracts of the Chicago Mercantile Exchange are subject to the supervision of the stock market watchdog.

“We believe that a multitude of investors have been eagerly awaiting the launch of a bitcoin-pegged ETF,” ProShares CEO Michael L. Sapir said in a statement Monday. In Sapir’s view, ProShares’ investment vehicle makes bitcoin accessible to investors who want to take advantage of the currency’s popularity, but who would rather not burn their fingers on cryptocurrencies, for example because they are afraid that hackers with their digital poet are attacking the cryptocurrency. or that the lack of supervision puts them at too much risk.

Founding fathers

And so, eight years after twin brothers and fellow Facebook founders Tyler and Cameron Winklevoss unsuccessfully tried to launch the first Bitcoin ETF, the doors are finally open to more US Bitcoin mutual funds. At least three competing ETFs are expected to debut in the coming weeks.

Brosens sees pros and cons to the bitcoin funds. “The risk of cryptocurrencies is that they are unstable, and so are these ETFs. In addition, you have to pay a fee to ProShares, so unlike when you trade in bitcoins yourself, some money remains on the bow. In addition, the futures contracts on which the ProShares ETF is based have an expiration date. This means that the fund has to keep buying new forward contracts, which can turn out to be unfavorable due to price fluctuations.’

The big advantage is that, unlike bitcoins, the ETF falls under the supervision of the American stock market watchdog. There’s no guarantee against tampering, but if it happens, the SEC will go after it.”

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