🎊 The big crypto surprise
Is the hype around the world's first-ever Bitcoin futures ETF genuine or misguided?
Hey 👋
Hope you had a great weekend!
Welcome to the mesha tribe—a biweekly newsletter by Mesha, an exclusive social community that lets you chat with friends, discover stocks and participate in challenges all on one platform.
Sounds Good? Sign up below 👇
Awesome. Let’s go!
The Big Story
Today is a big day for crypto enthusiasts worldwide as ProShares, an American firm specializing in ETFs, launches the world's first-ever Bitcoin futures ETF on the NYSE. The news boosted the already-high Bitcoin prices, which climbed more than 2% to $62,041.84.
But before diving into the nitty-gritty details, let's first understand what Bitcoin ETFs are.
At its core, ETFs are exchange-traded funds meant to open up the market to new investors by allowing them to invest in a basket of securities. They're traded similar to stocks but are backed by either an individual asset or track an index. A Bitcoin ETF will allow investors to invest in the cryptocurrency without holding it directly using their brokerage account.
But here's the catch: ProShares isn’t launching a Bitcoin ETF. It’s launching a Bitcoin futures ETF. And while the two may sound synonymous, they’re very different. A crypto ETF based on futures does not bet on the virtual currency itself but the price fluctuations.
ProShares' Bitcoin futures ETF will track the cryptocurrency’s spot price indirectly through the use of contracts overseen by the Chicago Mercantile Exchange, a global derivatives marketplace. This will allow regulators to track them without worrying about price manipulation—a major concern expressed by the US regulators.
That said, Bitcoin ETFs as a concept are not new. Crypto enthusiasts and traditional finance firms have been wrangling with the regulators to introduce them for decades. The first proposal was submitted in 2013 by crypto investors Cameron and Tyler Winklevoss to get permission for a Bitcoin fund to join the now-$6.8 trillion ETF industry.
But around that time, investing in Bitcoin was complicated, requiring investors to familiarize themselves with an entirely new vocabulary and safely maintain digital encryption keys or risk losing their investments. Citing these concerns along with the cryptocurrency's growing volatility, which would invite bad actors to commit market manipulation and fraud, the SEC decided to reject all Bitcoin ETF proposals.
That was until last year when cryptocurrencies gained mainstream momentum as millions of investors rushed to the virtual currencies market to make decent gains amid the pandemic.
Seeing this massive acceptance for Bitcoin and cryptocurrencies in general in the finance community, SEC Chairman Gary Gensler hinted that he would greenlight an ETF proposal that followed Bitcoin futures. He also said that they would have to be submitted through the same rules that mutual funds follow, granting greater investor protection.
The comment invited several firms, such as Cathie Wood's Ark Investment Management, Valkyrie Investments, Invesco Ltd, and VanEck Associates Corp, to file for Bitcoin futures ETFs.
While Invesco was also set to launch its futures ETF this week along with ProShares, the firm decided against it, adding that it will continue to offer investors "full shelf of products with exposure to this transformative asset class, including pursuing a physically backed, digital asset ETF.”
While the decision is a big step in the right direction for the community, crypto purists such as Anthony Pompliano argue that a bitcoin “spot” ETF would be a better option for investors, both from a price tracking and fee structure standpoint. Meanwhile, other crypto professionals claim that using futures contracts for an ETF would increase costs to the end-user—a drawback that can be removed in the spot market.
Either way, the announcement of Bitcoin futures ETF seems like a massive win for the cryptocurrency, which rallied 40% this month in hopes that the move will lead to greater investor acceptance of the digital currency. Will it be a massive success? Only time will tell. But for now, do let us know what you think in the comments.
Share what you learn 🤝
That's all for today. If you found this newsletter insightful, share it with your friends and colleagues and let us know what you think. Thanks!
We, at Mesha, believe in democratizing finance. Join us and be a part of a community that helps you to take your net worth #ToTheMoon🚀
Until next time, Bye!