October 19, 2021, was a turning point in the history of Bitcoin; with a Bitcoin Exchange-Traded Fund offered to the public for the first time on the New York Stock Exchange (NYSE) by ETF giant – ProShares. Not too long after that, VanEck Bitcoin Strategy ETF (XBTF) and Valkyrie Bitcoin Strategy ETF (BTF) launched.
This was thought to have signalled a huge step towards the acceptance of the largest cryptocurrency by market cap. ProShares Bitcoin Strategy ETF (BITO) offered investment options in BTC futures contracts traded on the Chicago Mercantile Exchange and not the currency.
As the crypto space expands, it has been trying to adopt mainstream investment options, one of such is exchange-traded funds (ETF).
Exchange-traded funds (ETF) are becoming more popular among investors due to their nature, i.e. ETFs, in a way, are ‘pools’ or ‘mixtures’ of assets and are traded on a stock exchange. This offers people the chance to purchase a share of the ETF.
The fact that these instruments (ETFs) are traded on a stock exchange and are managed by professionals gives them a sort of legitimacy in the eyes of investors. This was why the proposed launch of the Bitcoin ETF was greeted with euphoria by crypto enthusiasts, asset managers and investors, seeking exposure to Bitcoin. As expected, the share price of the fund saw an increase of over 4% on its first day of trading. The opportunity of investing in crypto without the storage and security worries was the main attraction of the ETF.
As of January 14, BITO is down -35.72%
Chart Credit: Yahoo Finance
This must be the look on the faces of investors now:
Okay, so what went wrong?
The debut on the NYSE coincided with a bullish rally that will later go on to break the previous all-time high. For 3 consecutive days, BTC had closed higher than it opened, and a lot of predictions were pointing towards the possibility of Bitcoin smashing the all-time time of $65, 000 recorded in April.
These loud predictions inspired the Fear Of Missing Out in the hearts of countless investors when BTC eventually recorded a new all-time high price of $67,000 the day BITO was launched on the floors of Wall Street.
After topping out, at $67,000 several people still believed it would continue the rally. This is evident in the record volume of trade BITO experienced that day. So these speculations made the price of the ETF go up, even though the underlying asset, Bitcoin, had reversed. This forms the basis of our assertion that the fund was overpriced from its first day of trading activities. This means it was only a matter of time before it (BITO) adjusted to fund its true worth.
After 3 weeks, BTC broke its recent record high and on the 11th of November 2021, It set the current record price of $69,000. BITO also made a new high, and everyone was happy, right? But not for long.
From this time on, till the end of the year, the bears were in full control of the market; driving the price down to as low as $42,600.
As for BITO, the euphoria wore off, the illusion waned, the music stopped and the bag was dropped for the “bag owners”. (Laughs). Just like the textbook examples of ill-thought business moves, investors are still licking their wounds; because as late as middle December, a lot of people were expecting a bearish reversal to put an end to the retracement, and surpass the $100000 price mark. This pathetic bloodbath has led to lots of people leaving the crypto ETF market.
What is the future for Crypto ETFs?
As things stand, it is ironic that an asset that saw record gains is now rated as one of the worst-performing asset classes. Seasoned analyst, Athanasios Psarofagis, appeared not to be so disappointed with the ETFs performance as he believes this case is just a result of ill-timing.
However, according to ETF expert, Todd Rosenbluth, the fact that there is still up to a billion dollars in overall assets in the fund, is a sign of comfort. Furthermore, he believes that investors who still seek to invest should channel their attention and resources to blockchain-related funds: ETFs that have a basket of blockchain and bitcoin derivatives.
His advice seems to be well-thought out, as non-crypto currency blockchain uses are growing by the day — one of the latest being IOTEX: a platform that seeks to take the Internet of Things (IoT) to the next level with the adoption of blockchain. Another is AUDIUS, an audio platform that aims at eliminating the need for intermediaries in music distribution.
In addition, there are established and reputable ETFs that can be invested in too. Examples are BLOK (in operation for 4 years), LEGR (being in inception since 2018), BKCH (established in July 2021) etc. These are interesting investment opportunities for investors who seek exposure to the blockchain tech that is taking over.
If one is to take into account the attempts made by crypto to gain a foothold in conventional financial markets, one would see the power regulatory agencies have in either accelerating or slowing down its acceptance. The Securities and Exchange Commission of the United States has rejected two applications for a spot-based ETF so far. These applications, if approved, may trigger the growth of crypto-themed ETFs. Experts say that 2022 may be the year for crypto, the year that regulatory bodies decide to allow the wind of change.
Financial markets around the world are inseparable from risks because nothing is certain and no one knows the future. So, we can only analyse, postulate and project what may happen, but we can’t be too sure.
Are you an investor, a trader, or simply a crypto enthusiast? How do you make your financial decisions, based on your hunch or financial experts? Whatever it is, let us know in the comments section below.