There was much comment from the digital asset community after the announcement of the planned launch of ProShares’ first bitcoin-linked ETF in the US, based on bitcoin futures.
The first piece of news was that the WisdomTree Enhanced Commodity Strategy Fund (GCC) had added an approximate 3 per cent allocation to cash-settled bitcoin futures traded on the Chicago Mercantile Exchange, with the firm announcing that this makes it the first ETF to provide exposure to crypto assets through bitcoin futures. The effective prospectus gives WisdomTree the ability to add a 5 per cent allocation to bitcoin futures, the firm writes.
“At WisdomTree, we recognise the growing number of advisers and investors allocating to digital assets and investments that provide exposure to digital assets,” says Jarrett Lilien, WisdomTree President and COO. “We have made a strategic effort over the past few years to invest in and develop expertise in the space. We are excited to announce GCC as the first ETF to invest in bitcoin futures, while doing so in an intuitive and measured manner that is complementary to GCC’s other investments.”
“Similar to gold, bitcoin is a scarce and structurally deflationary asset. We believe these qualities can be expressed by adding bitcoin futures as a compelling asset for a commodity strategy that seeks to provide a hedge against inflation and returns uncorrelated with equities and fixed income,” says Will Peck, Head of Digital Assets at WisdomTree. “By adding a limited bitcoin futures position within GCC, we are not only seeking to enhance portfolio diversification, but we are also seeking to facilitate GCC’s ability to perform positively in both rising and falling markets without significantly affecting the risk profile of GCC.”
Meanwhile, Tony Sycamore, Financial Markets Analyst APAC at City Index commented on the news, with a Bitcoin Bedazzles headline, saying: “Surely another step towards more widespread digital asset adoption, but perhaps not as big as some think…”
Sycamore’s point is that bitcoin, like all cryptocurrencies, trades 24 hours a day, seven days a week, 365 days a year, whereas the Bitcoin ETF will only trade for the ~seven hours a day the exchange is open and will not trade on weekends.
“This means that if big moves in either direction occur outside of the NYSE trading hours, then investors will not be able to capitalise or stop out of a position – as the case may be. Somewhat restrictive in the volatile world of cryptocurrencies,” Sycamore says.
More comment comes from Solidus Labs, the leading crypto-native exchange surveillance and risk-monitoring technology company, which believes that a Bitcoin Futures ETF is a step in the right direction, but says that there is still more to be done in ensuring markets are compliant and safe, which will ultimately usher in more mainstream crypto adoption.
Chen Arad, COO of Solidus Labs, says: “The futures-based ETF is a reasonable compromise: Approving a futures-based bitcoin-ETF, vs. a spot-based ETF, is a way for the SEC to add another layer of safety between US investors and crypto markets. While the SEC has consistently indicated it doesn’t feel comfortable with a spot-market bitcoin ETF due to the manipulability of those markets, they do recognise that a futures-based ETF allows for growth, adoption and maturity without exposing investors to too much potential risk. Gensler has repeatedly said he is more comfortable with the futures-based fund structure.”
Arad believes that the SEC will evolve accordingly. “When a regulator makes a move of this kind there is a tendency in the industry to celebrate and think we’ve turned the page, we made it. That’s not always the case – as more mainstream crypto products evolve, there will be more scrutiny and responsibility. The SEC and regulators will likely expect that the crypto industry continues to improve and increase its effort to protect investors and promote market integrity.”
Looking forward, Arad warns that the industry should expect more SEC and CFTC scrutiny, not less. “Now that a more mainstream vehicle is approved in the US, I expect there to be more scrutiny. If instances of manipulation are detected the SEC and CFTC will be much more aggressive in pursuing enforcement given the authority and responsibility they have with a mainstream product such as a futures-based ETF.”