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The ProShares Bitcoin Strategy ETF, the first crypto-based fund approved for US markets, started trading Tuesday, Oct. 19 on the NYSE under the symbol BITO.
While it is not the first Bitcoin ETF globally, BITO's launch in the U.S. represents a major milestone in the acceptance of Bitcoin (BTC) as an investable asset.
US-based Bitcoin ETFs also open the door for more US investors to own Bitcoin. Many US brokerages do not offer access to cryptocurrency or to foreign exchanges where other crypto funds might trade, while access to US-traded ETFs is common.
The ProShares ETF is the first crypto-based fund approved by the Securities and Exchange Commission for trading in the US, after a decade of applications from ETF sponsors. Many more appear to be on the way. A second has already launched, a third is expected within days, and many more are awaiting approval or being planned.
Trading opened at $41.94, and shares traded in a range from $37.34 to $43.95 in its first few days on the market, slight underperforming Bitcoin. The target is to match Bitcoin's return.
Here's how bullish investors can get involved with this Bitcoin ETF.
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
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Launched by ETF issuer ProShares and headed by CEO Michael L Sapir, the fund is designed to be a simple way for investors to get exposure to the Bitcoin currency in the major US markets.
ETF trading is available at low or no cost through most US brokerages, while many don’t offer direct access to crypto or to international funds.
The fund doesn’t own bitcoin directly. Instead, fund managers trade futures contracts, which are derivatives traded in the futures market that basically bet on the future price of Bitcoin. The ETF’s goal is to replicate the return of Bitcoin, meaning that a 10% move in the price of Bitcoin would mean a 10% move in the price of the ETF.
There’s no guarantee of that, and the fund is too new to judge how close the correlation will be.
The fund charges an annual management fee of 0.95%, relatively high for an ETF. The widely held SPDR S&P 500 ETF (SPY), for example, tracks the S&P 500 and charges 0.09%.
To check out other Bitcoin-related ETFs, check out our bitcoin ETF guide.
Founder & CEO at Monochrome Asset Management
For everyday investors, accumulating physical Bitcoin comes with added hurdles of custody and operational risks.
"Bitcoin as a technology is battle-tested, but there is an inherent operator's risk when self-acquiring, holding and managing a bitcoin position even for the most experienced digital native, hence there's a market for those who prefer a safe pair of hands to manage their investment in exchange for a small management fee.
"Investing in a Bitcoin ETF offers investors the benefits of a safe yet low barrier to diversifying their portfolio into the asset class since it's a well understood financial product for most investors."
Bitcoin futures ETFs are designed to suit investors looking to get exposure to Bitcoin without owning the asset itself.
The key is understanding the differences between the Bitcoin ETF and owning Bitcoin itself.
For stock investors whose broker doesn’t offer crypto, trading the ETF is the simpler choice. You can use your current account and keep your investments in the same place. Owning Bitcoin may mean opening a new account with a cryptocurrency exchange or a broker offering the asset.
By owning Bitcoin, you get 100% of any move up or down in the price of Bitcoin. With this ETF, you may not.
That’s because the current US Bitcoin ETFs are based on futures, which are derivative contracts that are basically bets on the future price of Bitcoin. The ETF managers trade futures contracts and seek to match the price performance of Bitcoin, moving 1% for every 1% Bitcoin moves. But the funds are too young to know how close that correlation will be..
ETFs also trade only during US market hours, while Bitcoin trades 24/7. So if a big move happens off market hours, you won’t be able to react immediately if you hold the ETF.
Fees are the other difference, and critical to any investment decision.
ETFs trade like stocks, with the same broker fee you’d pay for a stock trade. Online brokers like Robinhood and Sofi have made no-fee trading fairly common.
You’ll then pay an annual management fee that covers the cost of the managers trading futures for the ETF.
Trading costs for Bitcoin are more complicated. Robinhood offers no-fee trading, but with the caveat that Bitcoin will hold your assets. You can’t move your Bitcoin to another account or to a digital wallet, which is a device, program or website that allows you to hold your crypto directly.
Other brokers and exchanges charge a variety of fees, which can vary based on your account and market conditions. You may also pay a transaction fee as well as bank transfer fees for getting dollars into your account. Most basically, fees from Coinbase, one of the largest crypto dealers, look like this based on the amount you’re buying:
Over the last 12 months, ProShares Bitcoin Strategy's ETF's units have ranged in value from as little as $11.37 up to $44.29. A popular way to gauge a stock's volatility is its "beta".
Beta is a measure of volatility in relation to the market. The market (NYSE ARCA average) beta is 1, while ProShares Bitcoin Strategy ETF's is 0. This would suggest that the ProShares Bitcoin Strategy is less volatile than average (for this exchange).
Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.
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