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The first Bitcoin (Bitcoin) The Futures Exchange Traded Fund (ETF) was launched in the United States on October 19, 2021. Since then, many other cryptocurrency investment products have been launched in various markets.
The first ETF, the ProShares Bitcoin Strategy ETF, will soon Be one of them The top ETF of all time According to the trading volume at the time of its debut, shortly afterwards, several other Bitcoin futures ETFs Launched in the U.S., Provide investors with different investment options.
For Martha Reyes, head of research at the cryptocurrency trading platform Bequant, these choices are important. In an interview with Cointelegraph, Reyes pointed out that in the traditional financial sector, ETFs “have proven to be very popular in recent years. By 2024, ETF assets are expected to reach US$14 trillion.”
Reyes stated that investors who have been on the sidelines of the market may now choose to invest in cryptocurrencies if they prefer “low cost, flexibility and convenience.” [of ETFs], Especially because they don’t have to keep the cryptocurrency on their own. “
Reyes said that custody of encrypted assets can prove to be a “technical barrier to some non-encrypted natives.” The launch of encrypted ETFs may provide investors with the type of portfolio diversification they want through encryption, although some may wish to enter the market “through a basket that reflects different trends in this fast-growing market.” She added:
“Others prefer to do it themselves or use multiple strategies. The important thing is that investors have the right to choose.”
In fact, several options have been introduced in the past few weeks. WisdomTree, headquartered in the United States, has listed its cryptocurrency exchange-traded product (ETP) Crypto Mega cap Equal Weight ETP on Euronext Paris and Amsterdam.
Traded under the stock code MEGA, the product is backed by physical cryptocurrencies, including Bitcoin and Ethereum (Ethereum) And rebalance every quarter. Tree of wisdom Launched its WisdomTree crypto market (BLOC) and WisdomTree Crypto Altcoin (WALT) ETP in Europe.
Similarly, in December, Bitcoin Capital AG Two ETPs released On the Sixth Swiss Exchange, investors are provided with exposure to Bitcoin and Ether. These products are actively managed by FICAS AG and are available to institutional, professional and private investors.
These products have been successful so far, and more options are being launched regularly, effectively increasing investors’ choices in the market. For some experts, these products are part of the next step required for the widespread adoption of cryptocurrencies.
Investment products and adoption
For Reyes, participation in these investment products has so far been “mainly institutional,” especially in countries such as the United States that only trade futures products. She said retail investors “are aware of the increased rollover costs of futures compared to spot ETFs, which means that they are underperforming compared to underlying assets.”
Reyes added that for “wide retail participation, we may need to see off-the-shelf products.”
Sui Chung, CEO of FCA-regulated crypto index provider CF Benchmarks, said in an interview with Cointelegraph that cryptocurrency investment products are “an important driver of mass adoption,” although the company “wants to see a wider range of options.” These impact products may still be important:
“We should not underestimate the impact of these products in bringing new investors and capital to crypto assets, and how this will accelerate long-term adoption.”
Karan Sood, CEO and managing director of Cboe Vest, Cboe Global Markets’ asset management partner, told Cointelegraph that increasing the participation of diversified investors is “good for the market” because it “increases liquidity and helps build market foundations” facility.”
Sood said that before investing, investors should carefully review their possibilities, because some products were initially launched to allow investors to enter the cryptocurrency market, while others “try to provide solutions to the extreme volatility of Bitcoin.” .
According to Sood, volatility is “specific to the field of crypto assets.” Selling where Bitcoin and other crypto assets lose more than half of their value is so common that a drop of more than 20% is predictable. He added:
“What’s new, however, is the availability of funds, allowing investors to gain exposure to Bitcoin through strategies designed to reduce the impact of severe sustained declines.”
He said that these funds adopted “a set of managed volatility investment strategies widely used in traditional asset classes” and applied them to Bitcoin futures to protect investors from the impact of cryptocurrency fluctuations.
This volatility is believed to keep some institutional investors on the sidelines and prevent regulators such as the U.S. Securities and Exchange Commission (SEC) from finding appropriate ways to protect investors and adapt to innovations in the field.
For Chung, the cryptocurrency market has matured to the point where there are “core” exchanges like Coinbase and Kraken to ensure fair and manipulation-free transactions, so market manipulation should not be a problem. However, regulated products are more suitable for institutions and more conservative investors.
Considering the lack of spot bitcoin ETFs in the United States and the shortcomings of futures-based products mentioned by Reyes, retail investors must either gain exposure from other markets or directly purchase cryptocurrencies. However, these options are not the best choice for some people.
Early stages of crypto investment products
In the past few years, buying cryptocurrencies on the spot market has been the preferred strategy of most crypto investors, but more conservative investors who may want to diversify their portfolios may be upset by the lack of regulation in the market.
As Sood of Cboe Vest said, “compared to the trading and custody infrastructure of traditional assets such as stocks, bonds, and funds, there is almost no form of regulation.” He said that this lack of regulation “is reflected in the loss of keys, In the ongoing news of system hacking and crypto asset transaction fraud.”
Bitcoin futures investment products operate under the regulations of the Commodity Futures Trading Commission, while mutual funds holding Bitcoin are actively managed by regulated entities with a rich history of investor protection.
Taking these differences into consideration, Sood pointed out that “unless there is a change in the supervision of spot Bitcoin, there is a good foundation for BTC futures investment, but spot investment is not.”
It is worth noting that spot Bitcoin ETFs can be used in various jurisdictions. In December, Fidelity Canada launched a product like this Known as the Fidelity Advantage Bitcoin ETF. It is traded on the Toronto Stock Exchange and is priced in Canadian and U.S. dollars.
Su De said that U.S. regulation may impose a burden on investment product manufacturers, but it has “provided considerable value and protection for U.S. investors over the years.” He said that these protective measures have “withstood decades of time.” “Test”, therefore, if possible, investors should choose products that are regulated by the country.
Although futures-based investment products may not be the best choice for retail investors, Sood believes that some sophisticated products have been launched to provide investors with the cryptocurrency exposure they may be looking for. He concluded:
“Investing in overseas funds may expose U.S. investors to excessive unique risks and tax burdens.”
Reyes of Bequant pointed out that cryptocurrency ETFs have less than $20 billion in assets under management in 50 products, which means that we are “still in the early stages of adopting these products.”
Despite this, she believes that the approval of futures ETFs and the rejection of spot ETFs are “inconsistent” because spot ETFs are already trading in other jurisdictions. To make matters worse, futures products “mainly benefit institutional investors because it is too expensive for individual investors.
Grayscale Investments responded to the US Securities and Exchange Commission’s rejection of VanEck’s spot Bitcoin ETF application and issued a letter arguing The SEC’s rejection of such products is wrong After approving several Bitcoin futures ETFs.
Sui Chung, CEO of CF Benchmarks, stated that although futures products are a regulated tool supervised by the CFTC, “spot Bitcoin is not so clear.” The SEC faces challenges in balancing its enforcement authorization with the needs of US investors.
However, Chung pointed out that Bitcoin futures ETFs have “triggered irreversible changes” because they are “available to every investing public in the world’s deepest capital market.”
He said that the market has not experienced severe disruptions, “the sky has not fallen yet”, which means that we have “passed the road of no return.” For Chung, companies that can provide investors with ETFs that help diversify and expand their portfolios “will win.”
Make encryption more accessible
Bitcoin spot ETFs can make cryptocurrencies more accessible, but for the experts mentioned above, crypto ETFs are not just a product with physical risks-it’s about making cryptocurrency risks more accessible.
For Reyes, the futures ETF traded in the United States is “the final approval of the trial operation of the spot ETF.” She concluded that such an ETF would be very beneficial:
“Spot Bitcoin ETFs will further promote mainstream retail adoption of Bitcoin. Some investors prefer to easily enter the market in this way rather than through dedicated cryptocurrency exchanges.”
Reyes welcomed the regulation and pointed out that the stricter the regulation, the better, because these platforms can help show that regulatory concerns are easing, thereby further promoting the demand for cryptocurrencies.
Chung stated that by ensuring that investors deal with less friction when entering the market, cryptocurrency investment products can lead to mass adoption, because buying ETP through an existing brokerage account may be easier than opening an account on a cryptocurrency trading platform:
“We don’t want to dogmatize how people invest and understand encryption and its possibilities. Our job is to open up as many paths and promote adoption as possible.”
Although it is not clear when the SEC will approve a Bitcoin spot ETF, or whether existing solutions are sufficient for more conservative investors to take action, new investment products make it easier for investors to access the field.
Over time, this trend should continue, and new products will be launched, allowing cryptocurrencies to fully develop into a new asset class in the market, which can help Hedge against inflation or recession.
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