Need to Know – Crypto Edition: An Ether futures ETF is next likely step after ProShares watershed bitcoin moment, a former SEC official explains
Hi there! Welcome to the fourth and final installment of Need to Know Crypto Edition, ahead of the launch of a new weekly crypto newsletter “Distributed Ledger,” which will kick off next month. I’m Frances Yue, crypto reporter at MarketWatch, and I’ll walk you through the latest and greatest in digital assets this week so far.
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Crypto in a snap
We’ve witnessed two historical moments for bitcoin
this week. ProShares Bitcoin Strategy ETF
the first bitcoin-linked exchange-traded fund in the U.S., made its debut on Tuesday. After that, bitcoin hit an all-time high on Wednesday, trading near $67,000, surpassing its previous record high of $64,889 in April, according to CoinDesk data. As of noon Friday, bitcoin rose 5.1% for the past seven days, and 48.9% for the past 30 days.
also neared its all-time high, trading at $4,370 on Thursday, slightly below its record high of $4,379.11 in May.
% 7-day return
Source: CoinMarketCap.com as of Oct. 22
% 7-day return
Source: CoinMarketCap.com as of Oct. 22
A Grayscale bitcoin ETF?
On the same day of BITO’s debut, digital asset manager Grayscale filed to turn Grayscale Bitcoin Trust
the world’s largest bitcoin fund, to a spot bitcoin ETF, which is different from ProShares’s bitcoin futures ETF greenlighted by the SEC.
Grayscale has a good reason. A conversion to an ETF from its current trust structure will help mitigate GBTC’s long-lasting problem: shares haven’t always aligned with the price of bitcoin. GBTC has been trading at a discount to its net asset value, or its underlying bitcoin holdings since February, as investors turn to alternatives in the equity market to gain exposure in bitcoin, such as bitcoin ETFs in Canada.
On Monday, when the crypto market celebrated the SEC’s approval for BITO, GBTC’s discount to its net asset value widened to 20.5%.
Different from close-end funds, an ETF allows designated organizations to create and redeem shares of the ETF to keep its price in line with the net asset value. So GBTC’s discount will no longer be a problem, if its plan gets the regulatory go-ahead.
Grayscale’s conversion efforts have been in the works for years—it submitted a bitcoin ETF application back in 2016 only to withdraw it—and it has repeatedly expressed its commitment to change its fund structure to retain its dominant position as the largest crypto asset manager.
“At Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset,” Dave LaValle, global head of ETFs at Grayscale Investments said on Tuesday.
However, some analysts argue that a spot bitcoin ETF may still be far away.
Bitcoin futures have been regulated by the Commodity Futures Trading Commission since 2018, while such products are traded at the Chicago Mercantile Exchange, one of the world’s largest exchanges for derivatives. “That’s what got the SEC comfortable with allowing this [bitcoin futures ETF] product. You don’t see that with the underlying [physical bitcoin],” Carlo di Florio, global chief services officer at compliance advisor ACA Group and a former officer at the SEC, told MarketWatch in a phone interview.
“I think there’s going to be a lot more work that needs to be done by firms to design products that provide investor protection and market integrity assurance before we see a green light on [bitcoin] spot [ETFs],” di Florio said.
Ether futures ETFs, which are also traded at CME, might be more foreseeable than spot bitcoin ETFs, according to di Florio. “Because it’s futures,” di Florio said. “And it follows the same path that got the SEC comfortable with the Bitcoin futures ETF. So they’re likely to benefit from the same regulatory comfort.”
In August, VanEck and ProShares both dropped their applications for ether futures ETFs two days after they filed the application. Some analysts suspected that the SEC reached out to both issuers and indicated that ether-linked ETFs wouldn’t likely to be approved, at least not before any bitcoin-linked ETFs get the nod.
Darius Sit, managing partner at digital asset trading firm QCP Capital, echoed di Florio’s point, saying that an ether futures ETF might be approved before the middle of next year.
Three’s a crowd?
VanEck is slated to be the next fund provider to roll out a bitcoin futures ETF. It will be the third futures-linked bitcoin ETF since BITO made its debut last Tuesday.
VanEck Bitcoin Strategy ETF is expected to start trading on Oct. 25 (though that could change) and will be listed on the Cboe Global Markets BZX Exchange under the ticker symbol “XBTF,” according to a post-effective filing with the SEC. The expense ratio for the ETF is 0.65%, which means that an investor would pay annual fees of $6.50 for every $1,000 invested, which is lower than the expense ratio for the Valkyrie Bitcoin Strategy, which kicked off on Friday, and ProShares, which both carry a 0.95% expense ratio.
After bitcoin last time hit a record high in April, the crypto’s price more than halved in about a month. The plunge was exacerbated by the amount of leverage in the market as “a ton of the new levered longs got liquidated,” Sam Trabucco, CEO of quantitative crypto trading firm Alameda Research wrote on Twitter.
What about this time? Though Trabucco said that it’s hard to predict which way bitcoin price will go, he wrote that “I do think liquidations are FINALLY starting to be less important.”
The aggregated open interest of bitcoin futures, which refer to the amount of futures contracts outstanding, is about 20% lower than in April, according to data analytics firm Skew. Futures are derivative contracts that allow investors to speculate on price moves in an underlying asset, oftentimes using leverage.
“That means the potential for a huge liquidation-driven drawdown is WAY lower,” Trabucco wrote. “I think there is less (but still not zero) chance that a downside move is really outsized.”
“And the same is true for an upside move, roughly,” noted Trabucco.
The $29,000 Tungsten NFT?
Tungsten is associated with being the filament in incandescent lightbulbs, which might make it a rather anachronistic objet de désir in the digital community more familiar with LED, or light-emitting diode, lighting sources.
However, tungsten, also the second-hardest substance after diamonds and whose high-density, corrosion-resistant properties and tensile strength, when combined with other elements, make it ideal in building aeronautic components and military weapons, is the buzziest thing in the crypto world outside of virtual assets (and ETFs), right now.
The rabid interest in tungsten has made it a bit of a meme both in the real world and on social-media platforms like Twitter.
And like most other memes, its origins are difficult to trace, but interest in tungsten, particularly among the crypto Illuminati, has led to a 300% surge in tungsten cube sales for manufacturer Midwest Tungsten Service in a week, according to reports.
The appetite for tungsten apparently prompted Midwest Tungsten Service to auction a nonfungible token, or NFT, of the 14 inch, 1,784 lb tungsten cube, the largest that the manufacturer has ever produced. At last check, the top bid was well over $29,000, with a few days left on the auction. The winning bidder for the NFT will be entitled to have “one visit to see/photograph/touch the cube per calendar year,” according to the description. The cube is stored in Willowbrook, Ill.
In mid-October, Yahoo! Finance wrote that tungsten cubes have sold out on Amazon.com and Google searches in the U.K. for tungsten have spiked 95%.
Crypto companies, funds
In the fund space, BITO
slipped 3.23% on Friday. The highly-anticipated ETF closed its first week at $39.5, down from its opening price on Tuesday at $41.9. Valkyrie Bitcoin Strategy
the second bitcoin futures ETF in the U.S. that made its debut trading on Friday, closed its first day with a 2.8% loss at $24.3.
Grayscale Bitcoin Trust
closed at $48.8, with a 0.5% daily loss and 2.8% weekly gain.
In crypto-related company news, shares of Coinbase
went up 0.3% to $300.8 on Friday, and rose 7.2% for the past week. Michael Saylor’s MicroStrategy Inc.
slumped 2.3% to $718.5 on Friday. It was down 4.2% over the week.
Mining company Riot Blockchain Inc.
shares dropped 3.9% on Friday to $28.5. It was up 1.54% from a week ago. Shares of Marathon Digital Holdings Inc.
closed at $49.5 on Friday, down 2.9% from Thursday’s close but up 1.17% over the week. Another miner Ebang International Holdings Inc.
declined 3.8% to $2.05. It was up 4.1% over the week.
was mostly flat at $80.9 on Friday. It climbed 4.2% over the week. Square Inc.
fell 4.5% to $253, with a weekly gain of 1.6%, while Tesla Inc.’s
shares rose 1.75% to $910, recording a weekly gain of 7.9%.
PayPal Holdings Inc.
fell 1.2% to $240, logging a 10.4% weekly loss, while NVIDIA
was up 0.2% to $227, contributing to a 4% weekly gain. Advanced Micro Devices Inc.
inched up 0.4% to $120 and notched a 6.9% weekly return.
Bitcoin ETFs Are Changing the Game for Cryptos. But Investors Should Be Wary (Barron’s)
Fixed-income titan Pimco is starting to embrace cryptocurrencies, CIO says (CNBC)
Prelude to the future of finance? SocGen is raising a loan from a DeFi protocol to refinance tokenized bonds (MarketWatch)
JPMorgan Warns Boom for Bitcoin Futures ETFs May Come at a Cost (Bloomberg)
U.S. reviews sanctions policy, warns of threat from cryptocurrencies (Reuters)
Sotheby’s Makes First Crypto Investment, Backing NFT Startup Using Ethereum Blockchain (Forbes)
Reddit Is Building an NFT Platform (TheStreet)