The SEC approved Monday the application for the first exchange-traded fund linked to Bitcoin futures contracts, and today it begins its journey on NASDAQ.
The U.S. Securities and Exchange Commission, or SEC, approved crypto asset manager Valkyrie’s application to launch a Bitcoin Strategy exchange-traded fund from ProShares, with the shares to be listed on the Nasdaq Stock Market.
Bitcoin ETF made its debut October 19 will be traded on the NYSE under the symbol BITO.
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The confirmation of this news resulted in sustained rises in the cryptocurrency market in general. Today, Bitcoin rose again and is trading around $62,200 per unit, with a price variation of 2.22% in the last 24 hours, reaching its highest value since April this year, when it touched a record high of $64,895.
This month alone, the market’s flagship cryptocurrency rose nearly 40% on initial rumors in early October of the launch of several ETFs that will bring billions of dollars managed by pension funds and other large investors into the ecosystem.
With a surge in BTC trading given the bets of more and more traders ahead of the imminent launch of the expected U.S. futures exchange-traded fund, investment flows into cryptocurrencies could continue to escalate in the coming days.
ProShares CEO Michael Sapir said the launch marks an important milestone for cryptocurrency ETFs after several years of efforts to include one on an exchange: “BITO will continue the legacy of ETFs that provide investors convenient, liquid access to an asset class. 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.”
The U.S. regulator’s move comes on the heels of Switzerland’s approval in late September to launch the first exchange-traded fund in crypto assets. The same thing happened recently in Canada with the approval of several ETFs about digital currencies, which may have prompted the SEC to make the final determination with the ProShares fund. Still, the agency warned about the risks of investing in it:
Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits.
Check out our Investor Bulletin to learn more: https://t.co/AZbrkpfn8F
— SEC Investor Ed (@SEC_Investor_Ed) October 14, 2021
Recent background
According to an Oct. 15 SEC notice, the agency accepted the registration of shares of Valkyrie’s Bitcoin Strategy exchange-traded fund, or ETF, Bitcoin Strategy for listing on the Nasdaq. In a letter from Nasdaq’s vice president of listing qualifications, which Eun Ah Choi filed the same day, the exchange said Valkyrie’s Bitcoin ETF shares had been certified.
In its Aug. 11 prospectus with the SEC, Valkyrie said its Bitcoin (BTC) Strategy ETF would offer indirect exposure to the crypto asset with cash-settled futures contracts. The contracts will be purchased using a Cayman Islands-based wholly-owned subsidiary of the fund with exchanges registered with the U.S. Commodity Futures Trading Commission.
What is an ETF?
This type of instrument combines features of conventional mutual funds and stocks. Like funds, ETFs allow you to invest in a portfolio that includes dozens of stocks, bonds, or derivatives. But while the former need a couple of days to execute buy and sell orders, ETFs are traded on open markets, like stocks, which makes them more liquid and more transparent.
The history of ETFs, like that of many technological advances, has a lot to do with basic research. During the 1960s, University of Chicago professor Eugene F. Fama focused on the efficient markets hypothesis.
This theory assumed that in a well-functioning stock market, the quoted price is very close to the intrinsic price. The practical conclusion of this theorem is that it makes little sense to pay investment managers a lot of money to buy or sell stocks at the best price. While Fama continued his research (he would go on to win the Nobel Prize in Economics in 2013), one of his disciples decided to put it into practice.
Keith Shwayder, a recent graduate of the University of Chicago, began working in 1971 at the company founded by his grandfather: the Samsonite luggage factory. Encouraged by theoretical studies, he decided that the company’s employee pension fund should be a passively managed vehicle that would replicate the performance of all the listed companies on the New York Stock Exchange. That was a disaster because it was not easy to implement for relatively small assets. Two years later, Wells Fargo created the first index fund, open only to wholesale clients, which tracked the performance of the S&P 500 index.
The indexed investment made it possible to enter the stock markets with much lower fees (no managers or analysts to pay). Time eventually proved that indexing also allowed better returns than most conventional mutual funds.
