Register in 60 Days: How Bitcoin ETFs Are Affecting the Crypto Market

Bitcoin supporters have been fighting for critical recognition for over a decade.

It's been over eight years since Cameron Winklevoss and Tyler Winklevoss started applying for the Bitcoin Exchange Trading Fund (BTC ETF) in 2013. America's first BTC ETF, the ProShares Bitcoin Strategy ETF ($ BITO), has finally been approved by the SEC. It was listed on the New York Stock Exchange (NYSE) on October 19.

Although BITO is not the world's leading BTC ETF, US investors are now more likely to enter the Bitcoin investment stock market, which is why the US Securities and Exchange Commission (SEC) still includes cryptocurrencies in capital investments. A lot of people think that the ETF BTC announcement is going to "boost" the market, but in reality it's harder than you might think.

Now that BITO has been around for over 60 days, let's dig deeper into how these new products could impact the crypto industry.

How do BTC ETFs work in the United States?

Although BITO and other successful BTC ETFs track the value of Bitcoin, they do make gains, for example Bitcoin Futures ETFs, and money does not hold Bitcoin. Specifically, money is bought and held on the cash basis of the Bitcoin contract (BTC futures contract) traded on the Chicago Mercantile Exchange (CME). The CME group is generally the first choice for BTC ETFs in the United States due to its potential, and is also one of the few exchanges to get approval for BTC futures contracts. message from the Commodity Futures Trading Commission (CFTC).

Image Above: CoinGecko Research

In order to have an impact on BTC futures contracts, BTC ETFs must sell their Bitcoin futures contracts when they expire and replace them with new futures contracts with a completed date later. This process is also referred to as a “sliding buy”. "(Rolling).

In the case of BITO, the loan is a way to move forward into the future on a monthly basis, which means that the ETF goes beyond its monthly futures. In fact, most funds prefer this management because it is the shortest contract between CME Group and CME Group.

How does BTC ETF affect the cryptocurrency market?

One of the most obvious benefits of BTC ETFs is that Bitcoin has won the "embrace" of traditional institutions and investors who may have been too risky to try or find out the private key. The US Securities and Exchange Commission (SEC) BTC ETF is important. For many years the United States Securities and Exchange Commission (SEC) has always been uncertain about BTC ETFs, but now there are "approvals", which are undoubtedly important to the widespread use of BTC at the future.

Image above: TradingView

Looking at the image above, it is clear that even the US BTC ETF is still in its infancy, there are significant differences in demand by region. For total global asset management by 2020. (AUM) nearly 75% (about 5.6 trillion US dollars).

As of November 22, 2021, the total assets of BTCC, Canada's largest bitcoin exchange, were only $ 1.4 billion, as US BITO's total assets approach $ 10 billion. $ 13.7 billion, almost 10 times that of the BTCC. Overall, the US market accounts for 69% of all Bitcoin (e.g. ETNs) in the world.

In addition to the benefits of consensus approval, the success of BTC ETFs can be attributed to the positive growth of Bitcoin and cryptocurrencies in the trading community. In addition, the trading volume of BTC ETFs is very low compared to other stocks such as Greyscale Bitcoin Trust (see above). Keep the value close to the property's value. However, this price difference should be seen as a function, and if another difference is reported in the ETF BTC compliant instrument, it seems difficult to achieve.

BTC ETFs Based on Derivatives Worsen Impact of Poor Pricing

For BITO and other US BTC ETFs, adopting the “roll buy” model means that new futures contracts must be sold and bought when existing futures contracts are opened. The purchase will be completed regardless of the price. In other words, BTC ETFs are required to pay a lower price or a discount at different rates. These price differences are called "contango" and "premium spot". The price of a long-term futures contract is the price of the short-term futures contract, which is the futures price. Alternatively, payment takes place when the value of the long-term contract is lower than that of the short-term contract.

If you look at the difference in the closing price of the CME BTC futures contract, you can see that this indicator is generally important and frequent, as shown in the figure above (source: TradingView).

The average rate last year was 4% and the average haircut was 3%. On average, the trader will have 56% of the time paid in installments. It is important that the rates are higher than 5% (15%) compared to the reduced days (7%).

If the contract is longer than the expiration date, it is usually more expensive and less expensive. And the closer the growth, the higher the premium, so the cost is usually higher. Most BTC ETFs will be futures, as BTC ETFs typically sell proximity contracts at the end of the month to serve as focal points for futures contracts (CMEs).

Impact on the Bitcoin spot price

While the advantages of ETFs over the price of Bitcoin are there, it cannot be written in full, as there are many foreign exchange transactions that affect the price of Bitcoin.

Of course, analysis and measurement can also follow the ETF mechanism.

Spot ETFs can be seen as a way to get Bitcoin. As with the stock market, the wider the marketing channel, the greater the export capacity. In this case, ETFs see a greater distribution to traditional investors. As a result, this leads to greater demand, which further earns Bitcoin (the inheritance of ETFs) and increases its value.

Looking at Canada's first BTC ETF: BTCC (photo below, source: Coingecko), you can see that the situation looks like the one described above.

Data provided by Eric Balchunas, chief ETF analyst at Bloomberg, showed that BTCC's closing price rose by $ 3,000 on the first day of its announcement, with BTCC's market volume increasing by about $ 200 on first day. laboratory. A month later, BTC ETF's total assets managed to reach $ 1 billion.

However, as of March 18, 2021, the market value of Bitcoin is estimated at $ 1.1 trillion. When deciding on cost factors such as commodity prices, recession and macroeconomic economy, it makes more sense as it is cheaper to accumulate $ 1 billion, bitcoin price per month will be the main one. factor in price increases. Expect the first BTC ETF listing to boost trading.

Futures ETFs, on the other hand, are completely different. For Bitcoin futures based ETFs like BITO, there is no actual purchase of physical Bitcoin, so it cannot directly increase the value of physical Bitcoin.

But, as we have seen with BTCC, ETFs are a very good 'trading instrument', especially when the US comes into the 'game'.

Image above: CoinGecko

A week before BITO's listing (October 11-18), rumors surfaced that the US Securities and Exchange Commission (SEC) would approve the first US BTC ETF. soared to the dollar. up to 12.6%. After BITO went public on October 19, 2021, the price of Bitcoin closed at US $ 62,000, closing at a high of US $ 66,200 in two days.

However, it should be noted that in addition to the inducing effects of FOMO, future ETFs can also have a direct impact on prices. If there is a significant difference between the spot price and the futures price, the trader can use cash arbitrage (also called market base) to trade short / long BTC futures when buying and of the sale of Bitcoin. profit without risk.

Image above: Te55racT ​​(TradingView)

When listing BITO, the value of CME Group's BTC futures contract soared, creating a significant advantage over the value of Bitcoin. However, this situation was quickly resolved when traders started trading arbitrage. In particular, arbitrage traders are encouraged to buy Bitcoin when selling BTC futures contracts.

final thoughts

It stands to reason that the BTC ETF (location / future or not) is historically important to the crypto community. This is part of the global ETP certification, at least for now, as it shows that Bitcoin has been successfully regulated.

Many have asked the United States Securities and Exchange Commission (SEC) to approve the BTC ETF, as has Canada, although Brazil and other countries / regions have approved the BTC ETF. There was no positive impact on the position of the US Securities and Exchange Commission (SEC) Bitcoin ETF.

In this case, the approval of BTC futures ETFs as BITO is generally seen as a solution in the interests of investors, but it will not last long. Spot ETFs are much better than futures ETFs, and in fact, there is no clear reason why the United States Securities and Exchange Commission (SEC) approves either. In other words, the cryptocurrency industry should view ETFs as the first step in the market, not the end goal. We will soon see the emergence of more traditional investor-friendly products (retail or office), some will even enter the financial markets, of course, will bring new audiences to the crypto-currency industry.