The U.S. Securities And Exchange Commission approved the first cryptocurrency ETF last month. The ProShares Bitcoin Futures ETF was launched on October 18th and listed under the ticker BITO. It offers investors in the United States indirect access to the cryptocurrency market by investing in Bitcoin futures.
The SEC did not want to approve an ETF that tracks Bitcoin’s spot market price to avoid exposure to any potential price manipulation within the cryptocurrency space. According to the regulator investors are safer when they invest in Bitcoin futures ETF.
The BITO made an exceptional debut and gained $1 billion in assets within the first two trading days, what an outstanding result! The previous record was held by the SPDR Gold Shares (GLD), which took three days to hit the $1 billion AUM back in 2004! The next ETF record maker will be required to benefit from the inflows of $1 billion during the first trading day. We might never see such an ETF, however if it arrives it will need to be an exceptional one. Will it be a new asset class?
The expense ratio of the ProShares Bitcoin Futures ETF is 95 bps. Having taken into account the successful asset inflows straight from the beginning and the expected Bitcoin ETF launches by the other ETF providers, it is highly probable the ratio will drop closer to the level of 65 bps in the medium-term due to the competition pressure and even lower in the long-term perspective in line with the GLD expense ratio which is 40 bps.
The BITO sounds like a perfect satellite position to spice up investors’ multi-asset ETF portfolios to increase diversification and decrease correlation with the traditional asset classes. Due to the fact the Bitcoin prices can be extremely volatile cautious multi-asset investors should make it a maximum 3% allocation. Those who are willing to accept more risk should think closer to 5% and those who love to feel adrenaline can go up to 10%. There are still many risks not identified for the cryptocurrency asset class, hence the hard allocation limits should be respected and understood in line with your risk appetite.
The investment sentiment remains on the Bitcoin funds side as the asset inflows are very dynamic. Looks like the cryptocurrencies are emerging as a new alternative asset class (digital commodity) opposite to the gold that falls into the traditional asset class commodity basket.
It is also very interesting to see the list of U.S. crypto ETF/fund filings getting longer every day. It is a clear message to the asset allocators and wealth managers what are the investors’ expectations. This is one of the factors contributing to the wider financial sector but also economy digitalization fast development.