The US SEC’s approval of the BTC futures ETF will affect the currency circle?

Written by: Footprint analyst Helen (helen@footprint.network)
Date: October 19, 2021

Background

Recently, many mainstream American media reported that the US SEC (US Securities and Exchange Commission) is about to approve BTC futures ETFs, and Bloomberg and The Wall Street Journal have estimated the time of the first quasi-BTC futures ETF product in the US, that is, ProShares, the US fund issuer. BITO (transaction code) will be issued on Tuesday (October 19), and has not been officially issued as of press time; other institutions are also on the way to issue:

Valkyrie Investments, Invesco and VanEck, the first-tier fund issuers, will follow closely;

The second tier Galaxy Digital, AdvisorShares, Bitwise, BlockFi and ARK Investment Management may be released one or two months later.

After the issuance, what will happen to the BTC price? What is the public's attitude towards the ETF?

On February 18, 2021, North America’s first Bitcoin ETF, Purpose Bitcoin ETF (code BTCC), was officially listed on the Toronto Stock Exchange in Canada. The total trading volume on the first day was 9.3 million shares, and the total trading volume reached US$145 million. One of the top ten most actively traded securities on the Toronto Stock Exchange.

At the same time, the price of BTC soared all the way, and on the second day after listing, at 16:00 on February 19, the price of Bitcoin reported $51,675.39 per coin. Since falling into a downturn in May, the price of BTC has recently returned to 50,000, and it even exceeded 60,000 recently, which has something to do with the positive news of ETFs.

When the Canadian ETF BTCC was issued, everyone predicted that the US BTC ETF was not far away. As expected, after 8 years of persistent applications from various institutions, the US was really going to be listed this time. Although the US approved the BTC futures ETF for the first time this time, the popularity is not less than that of the Canadian BTC spot ETF.

In fact, the entire market is already ready to move. For example, the leading indicator Grayscale Investments has confirmed its plan to convert its Bitcoin Trust (GBTC) into a Bitcoin Exchange Traded Fund (ETF).

When buying a BTC futures ETF, what did you buy?

Simply put, an ETF is a combination of a pile of cash and a derivative that makes the cash fluctuate with the price of Bitcoin to form a synthetic Bitcoin. The author's analysis is somewhat similar to a stock fund.

If Bitcoin rises, ETFs will get more cash to invest in money market securities. If Bitcoin falls, the ETF will have to sell some of these securities to hand over some cash. If Bitcoin doubles, ETF cash will more or less double; if Bitcoin becomes zero, ETF cash will more or less disappear.

What is the difference between BTC futures ETF and BTC spot ETF?

Features of BTC spot ETF:

1. Bitcoin itself has spot characteristics, but unlike cash deposits, it requires another set of compliant custody and private key security management schemes that are different from national financial institutions;

2. There is no complete secondary platform for buying and exiting at a fair price in the market.

This is also the reason why the US SEC has not approved the BTC spot ETF in the early stage. The regulatory agency first tested the BTC futures ETF, which not only expressed support for the development of BTC, did not miss the blockchain dividend, but also avoided taking too much step forward and unexpected situations. Unable to end.

In the BTC spot ETF, the issuer needs to actually buy bitcoins and create smaller stocks. Therefore, the issuer is responsible for buying or selling the necessary bitcoins while safely storing bitcoins. In Canada BTCC, the Bitcoin held by the issuer Purpose Investments is stored offline by Gemini Trust.

Features of BTC futures ETF:

In the BTC futures ETF, the issuer does not hold real Bitcoin, but lays the foundation for stocks by holding positions in the Bitcoin futures contract.

According to Bloomberg opinion columnist Matt Levine (Matt Levine); when we invest a sum of money to buy a BTC futures ETF, what will the Bitcoin ETF do with your funds? The answer is that it will invest about 70% of its funds in money market securities, treasury bills or high-grade commercial paper or anything else.

For example, if we invest US$60,000 in a Bitcoin ETF, it will invest about US$20,000 in the futures exchange to pledge a synthetic Bitcoin, and will keep another US$40,000 in cash to earn a little interest. At the same time, the person selling synthetic bitcoin must spend approximately $80,000 to (1) buy the actual bitcoin and (2) issue a margin on the futures exchange itself.

Summarize

Once the BTC futures ETF is officially listed in the United States, it will become a milestone event in the global blockchain field. The U.S. regulatory authority legally recognizes the legal status of Bitcoin as a financial product, and the U.S. will have greater influence on the price of Bitcoin. , Bitcoin's currency price will also rise to a new height due to this incident, and follow-up developments let us wait and see.


Post time: Oct-27-2021