Digital Asset Weekend Round-Up 10.18.2021

Welcome back to the weekend round-up and be sure to read all the way until the end with crypto learning opportunities. This weekend was all about one thing: Approval of a futures-based Bitcoin ETF. Below we will go into a short round-up on this but will also include links to a few important happenings that may have gotten lost in the shuffle: Another crypto exchange goes public via SPAC, Bitcoin Mining evolution, and CFTC issues an order simultaneously filing and settling charges against Tether. After reading these don’t forget to register for DACFP Vision 2021 set to kick on tomorrow morning.

It’s been a long road.

The Winklevoss twins, founders of Gemini, first put in an application for a Bitcoin spot ETF in 2013 and have since put in another one, both being rejected by the SEC. The main reasons include the absence of regulation of spot markets, manipulation, and surveillance concerns.

Are we there yet?

Nope. The SEC isn’t quite there yet, or even close to there yet, but that isn’t stopping Grayscale and Bitwise. Grayscale plans to officially put in an application to convert the Grayscale Bitcoin Trust (GBTC) to a physically-backed Bitcoin ETF. Bitwise Asset management also put in for a physically-backed ETF on October 14th, with it an accompanying 226 slide report making the case for it. Bitwise has the advantage of being able to address all the SEC’s concerns given they applied for the ETF back in 2019. In the SEC’s 100-page rejection, they outlined all the reasons why they rejected it. Both Bitwise and Grayscale are hoping to ride the wave of momentum and put some pressure on the SEC to give institutions and investors what they want and what they believe to be the next step in creating a healthy digital asset market. Our opinion is that until there is more regulation enacted on spot markets, we will have to continue to wait for a spot Bitcoin ETF to be approved.

One thing will lead to another…

Over the weekend everyone in crypto land has been digesting and releasing their thoughts on the approval of a futures-based Bitcoin ETF. The consensus? Meh. A couple of Twitter threads I’d suggest going into are from Matt Hougan from Bitwise and Eric Balchunas, the senior ETF analyst at Bloomberg. The summary: Matt Hougan caps it off with, “A futures-based Bitcoin ETF comes with ~6-12% all-in costs, ~15% dilution, and tail risk. Useful for certain investors but not ideal.”

That usefulness comes in the form of hedging direct exposure portfolios and for traditional managers to have something to help investors gain exposure in ETF form. However, given the nature of futures-based ETF’s where contango and negative roll can detract significantly from the performance (See USO example), BITO, which is set to start trading on Tuesday, October 19th, addresses this by investing in cash-settled, front-month Bitcoin futures, which historically have the highest correlation to spot price at 0.991. As mentioned above check out and follow Eric Balchunas on Twitter for more of this and other analysis.

Another advantage is that this is another step towards normalization. As time goes on, we foresee the inevitable happening where managers will be asking themselves, “Why don’t I own the underlying?”

Is a futures-based ETF the dream? No. But is this a step towards achieving the dream? Yes. Stay patient, keep an open mind, and stay disciplined.

Our position? Clients come first so direct exposure all the way.

Next stop, spot Bitcoin ETF.

2/ First, why do we think BTC is better than futures?

A. Costs: It could cost over 5-10% per year to roll the futures (“contango”). Plus another 1-2% in fees.

B. Dilution: ETFs can’t hold 100% BTC futures due to rules. Most aim for 85%. So, 15% is other stuff, even bonds!

…

— Matt Hougan (@Matt_Hougan) October 14, 2021

Eric Balchunas (@EricBalchunas) / Twitter

Senior ETF Analyst for @Bloomberg. Dad. Rutgers grad. Gen X-er. Author of “The Institutional ETF Toolbox” & “The Bogle Effect.” Co-host of “Trillions” podcast.

What you might have missed…

Bitcoin Company Bakkt To Go Public on New York Stock Exchange - Decrypt

Crypto company Bakkt will start trading as a public company on the New York Stock Exchange on Monday after a successful merger.

Bitcoin Mining Is Decentralizing – Here’s Proof

Mining has moved out of China. Is this good for bitcoin? Based on one metric at least, the answer is a resounding yes.

CFTC Fines Tether and Bitfinex $42.5M for ‘Untrue or Misleading’ Claims

The U.S. regulator issued an order “simultaneously filing and settling charges against Tether,” the issuer of the crypto industry’s largest stablecoin.

DACFP Vision Conference 2021

VISION Conference returns with cutting-edge educational content and actionable ideas from leading investors and industry thought leaders. Chaired by Ric Edelman, VISION is specifically for financial advisors, created by financial advisors, giving you the core information, you need about the blockchain and digital assets. Earn 6 CFA PL, IWI CE, and CFP CE credits for attending!

DACFP VISION - The Premier Event on Blockchain & Digital Assets

OCTOBER 19 | Virtual Conference. Chaired by Ric Edelman, DACFP VISION is an event designed specifically for financial professionals.

Thank you for reading this all the way through. Be sure to tell someone today you care about them!

Stay safe, healthy, and happy!

– Marc

……………………………………………

Disclosures: https://bit.ly/3aJcBmw

*all pricing data provided by Messari.io

Previous round-up:

Digital Asset Weekend Round-Up 09.13.2021

Weekend ETH Prices – 09.13.2021 ETH Friday at 5pm: $3,542 ETH Weekend Low: $3,184 ETH Weekend High: $3,467 ETH Price as of posting: $3,200 Performance YTD: +336.27% Weekend BTC Prices – 09.13.2021 BTC Friday at 5pm: $45,424 BTC Weekend Low: $44,440 BTC Weekend High: $46,363 BTC Price as of posting: …

Read More »