Activities of ProShares Bitcoin Strategy ETF (BITO), the world's leading Bitcoin (Bitcoin) Futures-based exchange-traded funds (ETFs) have cooled significantly since the launch of ETFs that invest directly in cryptocurrencies began trading in the United States on January 11.
Just over $500 million worth of BITO stock was transferred to the NYSE on Thursday, 75% from the all-time high of $2 billion set on January 11, according to data tracked by cryptocurrency exchange Coinbase. Diminished. BITO witnessed net outflows of over $270 million during the same period. According to data source ETF.com.
Meanwhile, 11 spot ETFs recorded cumulative trading volume of $14 billion in the first week, which is more than all other ETFs launched in 2023, according to Coinbase. These funds have attracted more than $1.2 billion in investor capital in the week since their launch.
These spot ETFs invest in Bitcoin, allowing investors to gain exposure to cryptocurrencies while avoiding the hassle of storing Bitcoin, making them a better alternative than futures-based ETFs like BITO. It is considered a product. Because BITO invests in his CME BTC futures, expiring contracts must be rolled over to new contracts, incurring “roll costs” and weighing on the fund's performance in the long run.
Still, some people say the cash-generating structure of spot ETFs will likely keep futures-based ETFs relevant.
ETFs are created and redeemed in two ways: in-kind issuance and cash issuance. In the former, when an ETF issuer wants to create new shares, an authorized participant (AP) buys the underlying securities that make up her ETF and delivers it to the issuer in exchange for a block of ETF shares. ETF shares can be sold publicly. market. If the ETF wants to redeem shares, this process works in reverse.
The process for the cash generation structure is the same, except that the AP provides cash to the issuer, and the issuer purchases the actual assets.
As such, APs (financial institutions and market-making companies) are exposed to the risk that Bitcoin prices will fluctuate between the time they receive a buy order and the time the issuer purchases the asset to create new equity. I am. As such, some observers say AP is likely to do similar hedging with regulated products like BITO and CME futures.
“It is not uncommon for APs to return to regulated instruments such as BITO to hedge their positions (called deltas) as they may not have a CME futures account to do so. , is considered a good alternative when CME Bitcoin futures or even Bitcoin outrights are not viable,” Laurent Cousis, a crypto trading advisor and former ETF market maker at CEC Capital, told CoinDesk.
“The risk of being exposed or unhedged is very high, so BITO will provide adequate cover, but it is not a perfect hedge due to slippage and the corresponding costs of purchasing BITO,” Kusis said. added. “However, many APs either don't have a choice (either because they can't buy Bitcoin or aren't allowed to touch it by their compliance department), or they don't have access to infrastructure, i.e. administrators or back-office systems. We don’t even have the infrastructure to coordinate the position.”
David Duong, head of institutional research at Coinbase, said in his weekly newsletter that despite the recent drop in BITO trading volume, BITO remains “an integral part of the Bitcoin ETF space.” .
“Some APs (i.e. broker-dealers) will continue to rely on regulated hedging instruments, such as long CME futures when creating shares and long BITO (short CME futures for redemptions). We think so,” Duong said, adding that some APs believe that is likely. He bought Bitcoin ahead of the spot ETF launch and sold BITO “to hedge intraday buying and selling of potential clients.”
