Bitcoin ETF Goes Live: Here’s How The Crypto Market Responded

2021/10/21 10:14:49

Finally, after many attempts, we are going to be seeing the first Bitcoin exchange-traded fund. Now, you can get exposure to Bitcoin without actually owning one. After several failed attempts, the first Bitcoin ETF was launched on 19th October with the name Bitcoin Strategy Fund (BITO). This article will look at what exactly a Bitcoin futures ETF is, its advantages, and what its launch means to the crypto world.

What is a Bitcoin ETF?

Bitcoin has positioned itself as a trustless value exchange system while also being the first cryptocurrency to offer decentralization and a cheap cross-border payment option. This has led to widespread acceptance amongst different nations and individuals, with some touting it as the successor to the dollar.

Though Bitcoin has not yet reached that position, it has proven to be a much tradeable asset - like a combination of gold, the dollar, and the stocks. There is a need for an exchange-traded fund further to exert its domineering influence in a crypto-divided world.

An ETF can be best explained as an investment vehicle monitoring the performance of an asset. They offer you exposure to the asset without you actually owning any risk attached to owning the asset. With that, you expect the price of the Bitcoin ETF to differ from the spot market price of Bitcoin slightly, but the bull runs and corrections will both have an effect.

Why Are We Just Seeing a Bitcoin ETF In 2021?

The shout for a Bitcoin ETF is not a new one. There have been at least 10 major applications for a Bitcoin ETF since 2017, and none were approved by the Securities and Exchange Commission. The major blow came to the Winklevoss brothers (founders of Gemini and familiar face with Facebook) when their application for an ETF, called the Winklevoss Bitcoin Trust, was refused by the SEC.

The major complaint from the SEC is that the cryptocurrency market is largely unregulated and is not impervious to manipulation. A change in the SEC chair brought increased hopes for accepting a Bitcoin ETF. Despite the claims on unpredictable volatility, we have the first Bitcoin ETF called ProShares Bitcoin Strategy ETF.

Although these ETFs fall short of the crypto market's expectations as a fund that directly invests in Bitcoin, it is beyond doubt reasonable progress in Bitcoin purchasing. The ProShares Bitcoin ETF is futures-based, and it only tracks futures contracts, but we hope it will pave the way for the spot-based ETF as well.

Is there any advantage we can expect from this Bitcoin ETF? Does it change anything?

What Does a Bitcoin ETF Mean To The Crypto Market?

Increased Security & Convenience: One of the major attacks against cryptocurrencies (majorly Bitcoin) is wallet hacks. As Bitcoin is getting more popular, it seems the technology used to hack and steal Bitcoin has also increased in popularity. With a Bitcoin ETF, you don't need to contemplate using a centralized or decentralized exchange; neither do you worry about the security of your wallet or your private keys.

Since there have been past instances of decentralized wallets being inaccessible due to forgotten passwords, a Bitcoin ETF will most likely offer some form of safety for funds. Lasting success in the Bitcoin ETF will pave the way for mass adoption of cryptocurrencies as people will view it as an insured way of crypto exposure.

Ease of Buying: Although centralized exchanges have improved the way we buy and sell cryptocurrencies, having an avenue on a conventional investment vehicle (the New York Stock Exchange) makes it well suited for even the most risk-averse investors. With this ETF, investors also don't have to bother with the complex strategies for trading Bitcoin.

Legitimacy: Even though Bitcoin has reached a $1trillion valuation twice (only six traditional stocks have reached this $1T mark), many still view it as an illegitimate and speculative asset. Over the years, many popular companies (Virgin Galactic, Tesla, Coinbase) have also accepted Bitcoin as a means of exchange, putting further credence on its legitimacy.

Having an exchange-traded fund that tracks Bitcoin seems like a massive step in proving its legitimacy to crypto naysayers. The entire crypto market should also benefit from it, with perhaps their use cases seen as better alternatives useful in solving real-life problems.

How Did The Crypto Market Respond?

On the first trading day of ProShares Bitcoin Strategy ETF under the ticker (BITO), the fund rallied by 4.8% to end the day at $41.94, and it is currently hovering at $43.26 per share. It also experienced a massive volume of close to one billion at the end of its first trading day, making it one of the top ETF launches in history.

BITO (Bitcoin Strategy ETF) Price Chart | Source: TradingView BITO

In perspective, the first S&P 500 fund had a trading volume of just $40 million at its first. Would the Bitcoin ETF be a massive boost for Bitcoin to reach $100k before the end of 2021? Experts say yes!

Although there is no direct correlation to the Bitcoin Futures ETF and BTC spot prices, the price of Bitcoin, including many altcoins, rallied post the launch of ProShares BTC ETF. Bitcoin recorded its brand new ATH breaking the $64k mark, and we will be covering more about that in our upcoming articles.

Stay tuned and watch the KuCoin Blog for the follow-up articles related to this topic. All the best!

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