Crypto Investasi Briefing – November 2021

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 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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