The U.S.'s First Bitcoin-Linked Exchange-Traded Fund Launches
Interested
in Bitcoin but don’t want to open a crypto trading account? Wall Street has
something for you.
ProShares said Monday it plans to launch the country’s
first exchange-traded fund linked to Bitcoin. The ETF with the ticker symbol
“BITO” is expected to begin trading Tuesday, barring any opposition from
regulators.
It’s the latest milestone for Bitcoin and for the ETF
industry in general. In a statement, ProShares CEO Michael Sapir compared the
launch of a crypto-linked ETF to the 1993 launch of the first stocks ETF and
the 2002 rollout of the initial bond ETF. The U.S. market for ETFs has grown to
more than $5.4 trillion and they’re owned by roughly 9% of all the nation’s
households, according to the Investment Company Institute.
Cryptocurrencies, meanwhile,
have exploded into a nearly $2.5 trillion industry after the creation of
thousands of digital currencies. Bitcoin is the biggest of them all, with a
total value of nearly $1.2 trillion. But like much in the crypto world, the
Bitcoin-linked ETF is a bit complicated.
The fund won’t invest directly in Bitcoin itself. Instead,
it will focus on futures related to Bitcoin, a market that’s overseen by U.S.
regulators and can be complicated in its own right. That means investors need
to be particularly aware of what they’re buying, and how it’s likely to
perform.
Here’s a look at what the ETF does and doesn’t do:
Why is this a big deal?
A Bitcoin-related ETF would give investors a new way to
get involved in the fast-growing field of cryptocurrency. Bitcoin’s price has
more than doubled this year, and a growing number of investors see it as a way
to offer their portfolios some protection.
The hope is that Bitcoin’s price will move in a way that’s
not as tied to expectations for the economy as stocks and other investments
are. If it does, it could help support portfolios when everything else is
falling or when inflation is high. It doesn’t have a perfect track record,
though: When the U.S. stock market fell nearly 34% at the start of the pandemic
in 2020, Bitcoin lost roughly as much.
Some investors may not want
to open a new trading account for cryptocurrencies. Instead, they can buy the
ETF through old-school brokerage accounts they may already be using for their
stocks or their IRA.
What is an
ETF?
An exchange-traded fund allows investors to easily buy a
whole basket of investments. Some of the most popular ETFs track things like
the S&P 500 index of big U.S. stocks, the price of gold, or high-yield bond
indexes.
Unlike a traditional mutual fund, which prices just
once a day, investors can buy or sell an ETF throughout the trading day. That’s
particularly important for cryptocurrencies, whose prices can swing sharply
from minute to minute, let alone day to day.
So this new ETF will track the price of bitcoin?
No, and this is one of the most important distinctions.
The fund will invest in Bitcoin futures, which are essentially bets on where
Bitcoin’s price will go in each of the months ahead.
The Bitcoin futures market
is overseen by the Commodity Futures Trading Commission, which may offer
investors more protection. But it also doesn’t perfectly track the price of
Bitcoin.
“This is not a replacement for owning bitcoin directly,”
said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.