The financial world is in a flurry with US asset managers jumping into the crypto funds arena, particularly after the green light from the Securities and Exchange Commission (SEC) for 11 spot bitcoin ETFs. This watershed moment has spurred a surge in interest towards leveraged bitcoin exposure, pushing the boundaries of traditional financial products into the volatile realm of cryptocurrencies.
ProShares, a notable player in this field, is leading the charge with plans to unveil five ETFs. These include one offering double the daily exposure to a bitcoin index and others designed to provide inverse bitcoin returns, potentially yielding twice the decline of an underlying index. The catch? These ETFs are high-stakes, short-term investments, magnifying the already tumultuous price swings of bitcoin.
Leveraging the Crypto Craze
This strategic move by ProShares, which has stayed mum on its filings, is part of a larger trend among asset managers like Grayscale Investments and BlackRock. They’re not just dipping their toes in the water; they’re diving headfirst into the deep end of crypto funds. Grayscale is already on its way to launch a product dealing in options for its $26bn bitcoin ETF, while BlackRock aims to expand its colossal ETF lineup to include other cryptocurrencies. The future, however, might bring its share of regulatory tussles, with the SEC’s wary eye watching closely.
The potential for an Ethereum ETF is also buzzing, especially after BlackRock’s chief, Larry Fink, expressed its value on CNBC. Ethereum, with its wide usage and status as the second-largest token behind bitcoin, could be a game-changer. The SEC, traditionally hesitant with crypto funds, allowed several ether futures ETFs last October. However, these ambitious strategies will have to run the gauntlet of SEC approval, which has only just begun warming up to spot bitcoin ETFs after years of reluctance.
Regulatory Hurdles and Market Dynamics
Despite the SEC’s cautious stance, exemplified by Chair Gary Gensler’s statement emphasizing the limited scope of the spot bitcoin ETF approvals, the market is abuzz. Chris Brodersen, a digital assets expert at EisnerAmper, suggests that even if Ether ETFs face regulatory roadblocks, persistence could pay off, much like it did with bitcoin. The precedent set by Grayscale’s victory over the SEC last year, which led to the approval of bitcoin ETFs, indicates a shift in the regulatory landscape.
The first spot bitcoin ETFs, cleared for listing by the SEC, range from established giants like Fidelity and Invesco to digital-focused newcomers such as Grayscale and Ark Invest. BlackRock’s iShares Bitcoin Trust will be one of the first to trade, marking a significant moment in the crypto funds saga. This historic decision follows months of anticipation and a legal tussle, culminating in an unexpected turn of events involving a brief hack of the SEC’s social media account.
The crypto market reacted with its usual volatility to these developments. Bitcoin’s value, while below its peak, has shown resilience, further fueling the argument for its mainstream financial adoption. The US’s nod to spot bitcoin ETFs is seen as a gateway for institutional and retail investors to delve into crypto funds without the risks associated with unregulated exchanges or the costs of bitcoin futures-based ETFs.
Jad Comair of Melanion Capital regards this as a monumental milestone, signaling bitcoin’s acceptance in traditional investment circles and potentially opening Wall Street’s doors to crypto funds. This shift in the SEC’s stance, a departure from nearly a decade of resistance due to concerns over manipulation and fraud in cryptocurrencies, represents a significant shift in the regulatory environment.
The optimism surrounding these ETFs is palpable, with expectations that they will significantly boost demand for digital assets. However, there remains a healthy dose of skepticism among ETF observers about the magnitude of capital inflows these products might attract. Recall the fanfare when ProShares launched the first bitcoin futures ETF in 2021, drawing in $1bn within just two days.
Yet, this development isn’t without its detractors. Consumer protection and investor groups, like Better Markets, warn of the risks. Dennis Kelleher, the president of Better Markets, labels the SEC’s approval a historic error, potentially exposing millions of investors and retirees to the tumultuous crypto sector, notorious for its scandals and wild price swings.