Less than a week out from its historic launch, ProShares is already seeking to amend its Bitcoin futures exchange-traded fund — the first in the U.S. — by filing for an exemption from trading limits at the Chicago Mercantile Exchange, where the fund purchases its futures contracts, according to an article in Barron’s.
Fast facts
- The news was later backed up by Bloomberg ETF analyst Eric Balchunas on Twitter, who said: “Barron’s article confirms what I’ve been hearing too, that ProShares is filing to be exempt from CME position limits AND they can use swaps if need-be. Both would [obviously] be huge help to maintain exposure if $BITO keeps getting bigger.”
- ProShares is already at 75% of the limit of the futures contracts it is allowed to hold, holding 2,133 contracts for November and 1,679 contracts for October. It invests 25% of investor’s funds in a Cayman Island subsidiary, which in turn buys Bitcoin futures on the CME. Company CEO Michael Sapir also told Barron’s the firm will request permission to invest in other kinds of derivatives contracts. Currently, the remaining 75% of investors’ funds are invested in treasury securities and the repo market, but Sapir said the firm is considering also investing in later-dated contracts, swaps or structured notes.
- Launching on Tuesday last week, the ProShares ETF reached almost US$1 billion in trading volume at the end of the first day with more than 20 million shares traded. It became only the second fund to reach such a massive first day trading volume after BlackRock’s Carbon Transition Readiness sustainable ETF. After teasing the new level for most of the week in anticipation for the launch of the ETF, Bitcoin broke its all-time high the very next day, reaching US$67,276, according to data from CoinGecko.
- While there was a great deal of excitement surrounding the fund’s launch, not everyone believes a futures ETF is in the best interest for the industry. Andrew Sullivan, founder and writer for Asianmarketsense.com, told Forkast.News that as the futures contracts roll each month, they incur costs that will eventually be passed on to investors. When you add in the fund and management fees, this means it will be difficult for the fund to outperform and will likely lag behind Bitcoin’s performance by at least the percentage of those fees.
- This sluggish performance could harm the standing of Bitcoin ETFs going forward, says Sullivan: “Six months down the line you may see the performance has been so atrocious relative to all the other asset classes that people go, ‘Why on earth am I bothering to do this?’ And they’re only bothering to do it is because they’re not being allowed to invest directly or to run an ETF directly investing in the underlying asset.”
- There was, of course, another significant fund to launch this week; the Valkyrie Bitcoin Strategy ETF launched on the Nasdaq on Friday. This fund had a more sluggish start than ProShares, trading only 3.1 million shares with a total trading volume of about US$78 million.
- Speaking with Forkast.News recently, Valkyrie CEO Leah Wald said she was very excited by the launch, and that ETFs offer a great opportunity for more people to get involved in the Bitcoin ecosystem. “There’s definitely, as we all know, extreme pools of wealth and pockets of wealth that have been waiting for this traditional market vehicle in order to enter,” she said. “From an adoption standpoint, it’s going to be great because it just will provide that vehicle that makes these institutions comfortable.”