Weekend ETH Prices
ETH Weekend Low: $3,688
ETH Weekend High: $3,940
ETH Price as of posting: $3,789
Performance YTD: +417.53%
Weekend BTC Prices
BTC Weekend Low: $59,374
BTC Weekend High: $62,380
BTC Price as of posting: $62,091
Performance YTD: +110.67%
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
What you might have missed…
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