On October 20, the ProShares Bitcoin Strategy ETF (NYSE: BITO) opened for trading.
It's the first crypto-linked exchange-traded fund (ETF) in the US market. And it had an immaculate debut - with $1 billion in volume on the first day.
That makes BITO's debut the second-most actively traded ETF launch in history!
Off the back of the launch, bitcoin rallied over 60%.
Even better, the entire crypto market hit a new all-time high, surpassing $2.6 trillion.
Although BITO is good for the crypto market, I would not buy it!
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BITO doesn’t even invest in bitcoin…
Rather, it invests in futures that track the price of bitcoin.
Futures ETFs hold contracts that are close to expiration. As the contracts are set to expire, the ETF manager must sell them and buy new contracts.
And in the case of bitcoin futures, the new contracts are more expensive.
Since the ETF repeatedly does this, its return will likely lag bitcoin’s return.
So at this point, it would be wiser to invest in bitcoin directly through an exchange.
Despite this, the Crypto ETF is a BIG deal!
It means regulators are now more open to crypto ETFs.
Already numerous other crypto-related fund have applied for listing.
But the biggest one in the works is Grayscale Bitcoin Trust. The company has filed to convert its popular closed-end Bitcoin (BTC-USD) fund into an ETF.
As a result, this ETF could track the spot market of bitcoin.
And after that, we could see an Ethereum and other crypto ETFs to follow.
When that happens, ETF managers will be in a buying frenzy. New money will create massive demand and higher prices for cryptos.
You see, when more money comes into an ETF, the fund manager has to buy more of whatever the fund tracks. This forced buying creates momentum.
In fact, researchers have found that for every $1 that goes into an ETF, the value of the fund’s investments increases by $4. As a result, prices rise FAST.
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The positive developments see $100k bitcoin very soon!
A team of researchers at Standard Chartered recently predicted BTC to hit $100,000 by early next year.
They cited Bitcoin's potential to become "the dominant peer-to-peer payment method for the global unbanked" behind their bullish prediction.
Another reason is amount of available liquidity in the market, which has prompted leading Wall Street players to purchase Bitcoin.
So with prices sitting around $60k, it’s still not too late to own bitcoin.
See you next week.
Managing Editor, The South African Investor