November 2021
One of the most important developments in the crypto space recently has been the Bitcoin ETF (Exchange Traded Fund) approval from the U.S. regulators. In the month of October, three Bitcoin Strategy ETFs were approved by the SEC, along with one equity ETF (Volt), which aims to purchase shares of public companies that hold Bitcoin on their balance sheet. The announcement has attracted significant inflows this month, with ProShares ETF drawing more than $1 billion inflow within just two days. The year-to-date inflow into Bitcoin investment is now over $8 billion, surpassing the record of $6.7 billion in 2020.
However, purchasing these newly issued ETFs does not mean the investors are investing directly in Bitcoin. Instead, these ETF funds hold CME futures contracts as the underlying assets, not physical Bitcoin, and this makes quite a big difference.
Futures-based ETFs tend to underperform ETFs with physical underlyings. This is because of the futures roll costs or price deviation between the spot and futures prices. Take the gold ETF market for example—physically settled ETFs are much more popular than futures-based ones. According to a recent analysis by QCP, the most popular gold ETFs are all physical with a combined AUM of $91 billion. This overshadows the size of the remaining futures ETFs & ETNs with just $846 million in total AUM.
So why does the SEC only approve futures-based ETFs? In a Bloomberg opinion article, it points out that the regulator seems to be quite skeptical about physical Bitcoin ETFs due to two factors: trading and custody. Futures trade on registered U.S. futures exchanges, where it is much easier to monitor than physical bitcoin, which trades everywhere in the world. When it comes to custody, the security measures and wallet management can be quite complicated compared to an ETF that just holds a pot of money-market instruments and some regulated exchange-traded futures. As such, the U.S. Bitcoin ETF market might still be futures-based; since institutional investors already have access to the futures market, we need not be overly enthusiastic about ETFs that only trade synthetic bitcoin.
From an investor’s point of view, would you rather own a synthetic or physical bitcoin? Given it is relatively convenient to choose either, why not hold the physical version? Tokenomy offers a variety of crypto finance solutions that makes holding crypto easy. Please contact us any time to start a conversation.
Christian Hsieh
CEO, Tokenomy
- The SEC approved a series of Bitcoin ETFs. The first one is Volt Equity’s ETF, which aims to track companies that hold a majority of their net assets in Bitcoin, such as MicroStrategy, BitFarms, Tesla, Paypal, or derive a majority of their profit or revenue from Bitcoin-related activities like mining, lending, or manufacturing mining equipment. The SEC also approved ProShares Bitcoin Strategy ETF, Valkyrie’s Bitcoin ETF, and VanEck ETF, all futures-based ETFs.
- Facebook just introduced its own digital currency wallet, Novi. It first launched in the U.S. and Guatemala, but only with the Paxos stablecoin for now, not yet the planned Diem token. Paxos has positioned itself as a more responsible currency, and received “preliminary conditional approval” for a US bank charter from the Office of the Comptroller of the Currency in April.
- J.P. Morgan strategist says that institutions are rotating out of gold into bitcoin as a better inflation hedge. Bitcoin’s allure as an inflation hedge has perhaps been strengthened by the failure of gold to respond in recent weeks to heightened concerns over inflation, behaving more as a real rate proxy rather than inflation hedge.
- The United States has taken the leading position in Bitcoin mining. The latest update to the Cambridge Bitcoin Electricity Consumption Index (CBECI) has confirmed the impact of the Bitcoin mining crackdown in China, showing that the leading share of global Bitcoin network hashrate now sits in the US, followed by Kazakhstan and the Russian Federation.
- Gensler’s Crypto Testimony—6 Key Takeaways: The SEC chairman Gary Gensler laid out his stance on crypto regulation during a House Financial Services Committee hearing on October 5. This testimony shows how crypto will likely be regulated in the future.
- Russian President Vladimir Putin signaled tolerance of cryptocurrencies, as he said during a CNBC interview, cryptocurrency “has the right to exist and can be used as a means of payment”.
- MoneyGram Partners With Stellar and USDC for Blockchain-Based Payments. The firms will begin a pilot this year followed by a gradual rollout in early 2022.
- The Federal Deposit Insurance Corp. (FDIC), a key U.S. banking regulator, is studying whether certain stablecoins might be eligible for its coverage. This discussion takes place shortly after the Federal Reserve Chair Jerome Powell declared that the U.S. has no plans to ban Bitcoin and cryptocurrencies.
- The Security Exchange Commission (SEC) may start policing the $133 billion stablecoin market with bank rules. The Treasury Department and other agencies will specify in a highly-anticipated report — expected to be published this week — that the SEC has significant authority over stablecoins.
- The Houston Firefighters’ Relief and Retirement Fund, which has $5.5 billion in assets, said it invested $25 million in Bitcoin and Ether through NYDIG, a Bitcoin-focused subsidiary of asset manager Stone Ridge.
- Walmart shoppers can now buy Bitcoin at 200 kiosks in its stores. Walmart Inc. has started a pilot program in which shoppers can buy Bitcoin at Coinstar kiosks in some of its U.S. stores.
- George Soros Fund’s CEO and CIO Dawn Fitzpatrick has revealed that the family office owns “some” Bitcoins. The revelation confirms previous reports that said Soros Fund had started trading Bitcoin.
- The Economist, the venerable British magazine, has announced a plan to auction off the front cover of its September 18 edition as a non-fungible token (or NFT).
- Tether is paying $41 million to settle its latest fight with regulators. The U.S. said Tether misled customers over what, if any, assets backed its stablecoins. For years, the company pledged it had $1 for every token.
- Shiba Inu (SHIB) overtakes Dogecoin (DOGE) as the new memecoin surges in market capitalization. According to CoinGecko, SHIB is now one of the top ten cryptocurrencies by market cap. SHIB’s market cap is roughly $39.3 billion compared to DOGE’s $31.4 billion as of press time.
- The Federal Reserve published a paper on the International Role of the U.S. Dollar. In this research, it highlights that the dollar dominance will likely continue as there is no other currency that can match the wide distribution and dominance of the U.S. dollar. It also says digital currencies could reduce the reliance on the dollar.
- CoinDesk Research presents its latest Quarterly Review on crypto market, which analyzes the rise of alternative layer 1 blockchains, DeFi & NFT hypes, stablecoins, and regulatory developments among other key crypto market trends observed in Q3.
- Chainalysis published its comprehensive 2021 Geography of Cryptocurrency Report, where it highlights the populations from emerging economies are leading the crypto adoption more than those of developed markets.
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