ProShares Bitcoin Strategy ETF (BITO) Likely the Biggest Launch Ever

ProShares Bitcoin Strategy ETF – the US’s first bitcoin ETF, albeit based on holdings of CME bitcoin futures contracts and does not invest directly in bitcoin – has had a stellar start to trading.

The ETF reached a session high of 5.4% at $42.15 on strong buying pressure.

ProShares Bitcoin Strategy ETF – ticker BITO – provides both retail and institutional investors with regulated exposure to bitcoin.

However the fact that it is based on a futures instrument means it will likely trade at either a premium or discount to the underlying bitcoin value.

BITO is likely the biggest ETF launch ever

Bloomberg estimates that 12 million shares have changed hand, valued at $480 million making it one of the busiest trades of the day in the ETF space. Within the first 15 minutes of opening $250 million worth of shares were traded. Retail investors are thought to be the main buyers at this point given that institutions will have been able to buy bitcoin futures directly on the Chicago Mercantile Exchange.

BITO was the most traded asset on fund giant Fidelity’s US investment platform – there were 5,500 buy orders by 11 a.m. Eastern Standard Time.

In a further sign of the popularity of the ETF, the ProShares website has fallen over under the load from interested investors, as at 12.30 New York time.

On current metrics, BITO looks likely to be the largest exchange traded fund launch ever.

ProShares Bitcoin Strategy ETF contract holdings

Description	Exposure Value (Notional + G/L)	Market Value ($)	Percentage (%)	Shares/Contracts
CME BITCOIN FUTURES (BTCV1)	19,728,000.00	–		64
CME MICRO BITCOIN FUTURES (BMRV1)	258,930.00	–		42
Net other assets/cash		$20,000,549.33	100.00%	$20,000,549.33

It has been a long wait for a bitcoin ETF to be approved in the US by the Securities and Exchange Commission. The investor protection under the 1940 Act that come from being built around a regulated derivatives product are thought to have made the SEC’s chairman Gary Gensler relatively relaxed about approving this ETF. There are at least another eight bitcoin futures ETF products waiting for approval.

Speaking on Bloomberg TV ProShares strategist Simeon Hyman said: “We are really excited to bring BITO, the first Bitcoin-linked ETF, to investors as an important opportunity for them conveniently to invest in Bitcoin in their regular brokerage account… This is going to allow many people who have been waiting for an easy way to do this and a robust way to do this to now be involved and have it in their portfolios.”

Tom Lee, co-founder of Fundstrat Global Advisors, expects BITO to attract inflows of as much as $50 billion in its first year, as it takes advantage of being the first to market.

Ben Johnson, director of global ETF research at Morningstar, told the FT that a bitcoin ETF “opens up the investment opportunity to a larger pool of assets than ever before, including many investors’ nest eggs”.

ETF provider Valkyrie is probably the issuer of the next bitcoin futures ETF to gain approval, perhaps as soon as tomorrow (Wednesday 20 October). It will have the ticker BTFD.

Early losers – bitcoin proxy MicroStrategy and GBTC

Early losers from the BITO launch are the bitcoin proxy companies such as MicroStrategy which hold bitcoin on their balance sheets. The shares are down 3.5% at $727.

Grayscale Investments may also be a loser. Its Grayscale Bitcoin Trust (GBTC) is the largest fund but its investment trusts structure means it can trade at large premium to its net asset value, which means an investor pays more for the shares than the underlying value of bitcoin they represent.

In anticipation of institutions and other accredited investors exiting the fund, Grayscale is looking to convert to an ETF. However, it is unlikely to win approval as the SEC is still nervous about an ETF that invests directly in bitcoin because of worries about market manipulation on unregulated exchanges, price discovery issues and security of assets.