What is BITO? | ProShares Bitcoin ETF Guide
Oct 22, 2021
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It was a question of time when ETFs (exchange-tradable funds) will embrace cryptocurrency trading as both types of instruments have been increasingly popular as of late. If you are not familiar with the concept of ETF, we will give you a short explanation. ETF is a trading instrument that tracks the price of a certain asset or a basket of assets and mimics its value while being traded. For instance, the Bitcoin ETF is a trading instrument that has approximately the same price as Bitcoin and this price is changing together with the Bitcoin price. What makes it different is the technical characteristics as trading an ETF doesn't require having a crypto wallet and in general, is simpler. On October 18, 2021, ProShares launched the first Bitcoin ETF in the US called Bitcoin Strategy Fund. So now that the Bitcoin ETF became a fact of reality, we will tell you everything you need to know about Bitcoin ETFs.
Bitcoin ETFs
So why might you need Bitcoin ETFs in the first place? One of the prime benefits of ETFs trading is that it allows traders and investors to diversify their portfolios without having to buy new assets. If everything you need is just buying and selling different instruments in order to make some money from the rate differences, then having an ETF is enough, you don't need the asset itself. If you prefer long-term investments, diversification of your portfolio can also be made via ETFs. You won't have to dive deep into the understanding of blockchain, cryptocurrencies or even learn how to use the BTC wallet properly if you use Bitcoin ETFs instead. If cryptocurrency is more like a trading instrument for you and you are not going to use BTC or other crypto coins, then Bitcoin ETF can be a handy replacement.
More than that, Bitcoin ETFs can be traded via standard exchanges instead of crypto exchanges. It makes Bitcoin ETFs more attractive for traders that don't have experience in using cryptocurrency exchanges. Traders and investors with knowledge of ETFs but without any experience in cryptocurrencies now finally have a chance to earn via the crypto market via Bitcoin ETFs trading. They won't have to learn the basics of cryptocurrencies to do so. Another benefit of dealing with Bitcoin ETF instead of Bitcoin itself is the opportunity to short sell the ETF shares while short-selling Bitcoin would be a problem. What makes Bitcoin ETF more attractive than investing in cryptocurrency directly is the fact that the futures market has much better liquidity compared to the liquidity of the BTC market. As of October 2021, it is $62 billion against $37 billion. On the other hand, futures can seriously differ from the actual prices for Bitcoin. Futures-based ETFs are believed to be less profitable than those tracking the underlying asset itself.
The NYSE welcomes @ProSharesETF in celebration of the first U.S. Bitcoin-Linked ETF $BITO https://t.co/0qh0NDS2d4
— NYSE 🏛 (@NYSE) October 19, 2021
The fact that the Bitcoin ETF was finally approved cannot be underestimated as another step in pulling Bitcoin out of the dark unregulated marginalized financial grey zone. Making a Bitcoin ETF possible in the USA was a long journey. The American regulators were blocking the attempts to launch such instruments. In 2017, the Winklevoss brothers' project failed to become the first Bitcoin ETF as the Securities and Exchange Commission (aka SEC) didn't approve it citing the fact that Bitcoin is traded on unregulated platforms. Cboe Global Markets was another entity trying to launch a Bitcoin ETF to no success. The other initiatives to pass the SEC filter have followed, however, only in October of 2021, the first Bitcoin ETF was finally approved. The one proposed by ProShares.
The First Bitcoin ETF
ProShares is an experienced player in the ETF field. No wonder it succeeded in obtaining the SEC's approval. The company was founded back in 2006. The current capitalization of the assets in the ProShares pool exceeds $67 billion. Among the best strategies offered by ProShares, one can find dividend growth, geared ETF investing, and interest rate hedged bonds.
Speaking of cryptocurrencies, ProShares focuses on investing in Bitcoin futures. It is totally understood as the futures market is better regulated and draws smaller risks than investing in cryptocurrency itself. Most probably, for the same reason, the SEC was more favorable towards the ProShares proposal. Shortly after going live, the ProShares Bitcoin Strategy ETF has gained 5% in value. Several other Bitcoin ETF proposals are waiting for approval soon.
The very fact that the first Bitcoin ETF was finally launched will probably boost the price of BTC, as experts expect. This prediction is based on the fact that in the past similar events (Coinbase listing on Nasdaq and launch of BTC futures) have coincided with the Bitcoin rally. Ironically, both events were taking place at the final stage of the rally, and both times the bear market was soon to come. However, some think this time the thing will be different. ETFs are generally used by institutions and they usually get profit once a quartal. That means that only in 2022 the money invested by institutional investors in the Bitcoin ETFs will impact the cryptocurrency market.
What Is BITO?
BITO is a symbol for the ProShares Bitcoin Strategy ETF. It promises investors to benefit from the Bitcoin markets via exposure to BTC futures contracts. ProShares aims to provide ETF investors with a convenient and transparent environment for this. ProShares warns potential investors that the price of the fund may differ from the BTC price on spot exchanges and reminds us that investing in an ETF is not investing in Bitcoin itself. The company warns about the extra risks associated with investing in the Bitcoin ETF citing the lack of regulation, the possible price manipulation, the high dependence of the price on the media and influencers, and the overall volatility of the cryptocurrency's price as the factors that can lead to the unexpected quick decline of the BITO's value. The ProShare fee is 0.95%. BITO fees are low and make investing in Bitcoin futures more accessible than trading cryptocurrencies.
As of October 22, 2021, the BITO performance is more than great. In the first two days of trading, the ProShares Bitcoin Strategy ETF amassed two billion dollars — the market hasn't seen anything like this since 2003 and in fact, BITO has beaten the record of 2004. BITO managed to outperform SPDR Gold Shares which was the previous champion as the quickest ETF to gain $1 billion volume. The Bitcoin ETF gained over one billion in two days when the Gold ETF needed three days for that. It is a clear sign that the Bitcoin ETF is really in high demand and that comparisons between Bitcoin and gold are quite appropriate. Some investors, however, are yet to buy in BITO as they want to wait and see what will happen with the Bitcoin ETF in the nearest future and better understand the regulatory side of things.
Conclusion
BITO has already established itself as a groundbreaking event on the ETFs and futures markets, as well as an important step in improving the legal status of cryptocurrencies. As of now, investors and traders of all kinds got the most legally clean way of working with Bitcoin and this way is using BITO. Nevertheless, the reservations associated with the futures market and crypto market instability are still in place and the emergence of BITO is rather an important stepping stone than a full-fledged victory for investors interested in cryptocurrency.
The opinions and assessments expressed in the text are the views of the author of the article and may not represent the position of Cryptogeek. Do not forget that investing in cryptocurrencies and trading on the exchange is associated with risk. Before making decisions, be sure to do your own research on the market and the products you are interested in.
Journalist, cryptocurrency enthusiast. I've being investing in cryptocurrencies since 2016. I hold a Bachelor's degree in civil engineering.
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