The ProShares Bitcoin Strategy ETF of ProShares Trust planned to invest in “Canadian Exchange Traded Funds and Other Pooled Investment Vehicles” while primarily focusing on CME fiat bitcoin futures, but SEC has forced them to invest in fiat futures only.
The new approved prospectus now says they will invest in fiat futures as well as US Treasury bills – presumably for short term borrowing or some sort of leveraging through reverse repos – omitting Canadian ETFs or other pooled investments.
They are to charge a maintenance fee of 0.95% a year, with NYSE certifying BITO for trading potentially as soon as this Monday.
The ETF will ‘invest’ in monthly futures contracts which expire on the last Friday of every month. That could lead to additional expenses for its holders as the approved prospectus says:
“Futures contracts with a longer term to expiration may be priced higher than futures contracts with a shorter term to expiration, a relationship called ‘contango.’
When rolling futures contracts that are in contango, the Fund will sell the expiring contract at a relatively lower price and buy a longer-dated contract at a relatively higher price.”
So the fund will lose money compared to the actual holding of bitcoin, which could have been remedied to some extent by holding actual bitcoin ETFs from Canada or Europe, but SEC said no.
Why, is not clear except that SEC’s chair Gary Gensler still has a pension with Goldman Sachs with JP Morgan’s CEO, Jamie Dimon, calling bitcoin worthless, courting a reply by Putin who asked why then does it have value?
That goes to show that bitcoin is going to a market where those that set the rules don’t like it very much. That includes Gensler himself who has called it a fad.
However there isn’t such a thing as bitcoin ‘going’ anywhere. Some people that want to offer a bitcoin product have gotten the greenlight by limiting themselves as demanded by biased Gensler. And as it happens there’s nothing the bitcoin CEO can do about it.
Which is good for bitcoin because it will open access to a new market for those investors that have no other choice but to buy this fiat ETF, something that increases participation and should feed into more demand.
Those that do have other choices would probably go no where near an ETF that has to deal with monthly expiries, so demand that would have gone to spot most likely won’t be affected and might even increase as those that currently do not have other choices, may move to get other choices including by suing Gensler personally or the SEC either for loses due to contract rolling or under a judicial review of their overtly biased decision/s.
That should strengthen bitcoin in the process and increase its resilience with the ETFs facilitating a new level of sophistication for the next cycle in 2024, in time for the French Olympics.
Just as bitcoin fiat futures did. Initially they were a dud and even a drag on bitcoin, but eventually financial houses from Shanghai to Amsterdam, London and New York, learned of the potential usefulness of bitcoin to their financial instruments after experimenting on fiat bitcoin futures, and have now expanded far beyond fiat futures to numerous different bitcoin – often spot – instruments.
We can’t predict the butterfly effects of the ETF, but it would be reasonable to say there might be an echo, and this time since there’s precedence, there might even be pricing in potential for the next cycle.
Making the ETF a seal of approval of sorts and a signal to boomers that they can now buy bitcoin because the regulator says it is good to trade in grandpa markets.