BTC ETF: Trojan horse or course booster?

The time has finally come: the first American BTC ETF was approved by the SEC. The ProShares BTC ETF (BTC Strategy ETF – BITO) has been tradable on the NYSE since October 19. What effects can be expected on the BTC price, why the future coverage of the index funds can be viewed critically and why crypto enthusiasts should prefer direct investments.

Basically, getting a BTC ETF approved is good news. Virtually no other type of security has grown faster and recorded inflows of funds over the past two decades than the exchange-traded index funds. The reasons for that are obvious.

• they are structured as special assets so that the issuer risk can be eliminated,
• they are traded on the stock exchange, ergo liquid,
• they meet the highest regulatory standards,
• they usually have very low fees, especially when compared to actively managed funds,
• they offer simple and inexpensive access to various industries and indices for small investors,
• many of them are capable of savings plans,
• In some jurisdictions, especially the USA, ETFs may be subject to tax incentives if they are used, among other things, for retirement planning.

Better a securities account than a wallet

ETFs are particularly attractive for crypto currencies, as the majority of investors still shy away from tokens or prefer to use their own securities account to invest their assets rather than a wallet. The technical reduction in complexity – as strange as it may be for crypto enthusiasts – is a big argument in favor of a BTC ETF.

Finally, it should not be forgotten that most of the money lies with the baby boomer generation and not with the crypto-savvy, younger generations. For many of this generation, the ETF could be the first point of contact with the new asset class.

Institutional Investors and Inflation

In addition, there are institutional investors who often have to wait for an ETF for regulatory reasons in order to invest in BTC. Since most of the money is to be located there, this potential inflow of funds could lead to significant positive effects for the BTC price. The deep pockets would finally have a particularly safe vehicle to add another asset class to their portfolio.

Asset managers and family offices in particular are under pressure to protect their clients’ capital from inflation. A BTC ETF for diversification comes in handy here. With inflation rates in the USA and Europe of over five percent in some cases, even conservative investors are more open to considering “unconventional” investments such as BTC.

Gold ETFs set precedent

The narrative of rising BTC prices thanks to BTC ETFs is based, among other things, on gold ETFs. After the first gold ETF was issued in 2003, they have become very popular investment products. The largest American gold ETF alone (SPDR Gold Trust) has a market capitalization of nearly $ 60 billion.

At the same time, in the opinion of many gold supporters, the derivatization of gold has had a negative effect on the price in the long term. The accusation here is that some players, such as central banks, buy physical gold and at the same time short the precious metal with gold securitisations. Finally, futures, such as those used in the ProShares BTC ETF, can also be used to short courses. An ETF with an underlying gold short futures or BTC short futures can mean exactly the opposite of rising prices. Some even accuse the central banks of manipulating the gold rate, which was only made possible by “paper gold”.

BTC Futures ETF: The Trojan Horse

This could also explain the openness of the American securities regulator SEC to futures securitisations. Instead of speaking out in favor of ETFs with simple BTC deposits, the futures contracts are praised. This also distinguishes the American BTC ETFs from the Canadian ones, which securitize the underlying BTC without going through the futures. Detrimental roll effects for investors, also known as contango, can thus be ruled out. Especially since you avoid unnecessary complexity through future securitisations.

To put it cautiously, one could assume that the American authorities are leaving a back door open with futures in order to be able to better influence or shorten the BTC price if necessary. Overall, the easily controllable BTC futures markets would be strengthened in your own interest and made even more liquid.

Will BTC have two different courses soon?

While investors are currently paying price surcharges so that they can purchase BTC as a regulated security – for example at the Grayscale Trust – this is likely to be reversed. In the future, effects similar to those of precious metals could occur. In volatile market phases, the prices between the physical and securitized underlying can vary significantly.

Since less and less BTC are freely available on stock exchanges and are instead managed by large custodian companies, “real” BTC could gain in value compared to certificates, futures, ETFs, etc. in the future. The BTC in your own wallet could then be worth more than the equivalent BTC derivative.

Conclusion on the BTC ETF

It is likely that the demand for the BTC ETF will be very high. In the first two days alone, more than a billion US dollars in cash inflows came together. There has never been an ETF with such resounding success. The same applies to the Canadian BTC ETF. In the Canadian ETF past, there was no more successful index fund than the first BTC ETF (Purpose BTC ETF – BTCC). The ETF, which is listed on the Toronto Stock Exchange, has reached the one billion CAD mark (the equivalent of 700 million euros) after just one month.

The numerous new American futures-based BTC ETFs, such as the second American BTC ETF from VanEck, have a good chance of accumulating cash inflows in the high two or lower three-digit billion US dollar range within the next 12 months. The effect on the BTC course would be clearly positive.

However, a BTC price explosion solely due to BTC ETFs is not to be expected in a short period of time. However, market psychological impulses (FOMO) can very well be set in motion by ETF approvals, which in turn can have a reinforcing effect on a rising BTC price. These and other effects, such as technical dynamics, can of course overcompensate for the ETF effect and trigger a significant rally. In any case, the new BTC all-time high is proof that the BTC ETF approval was well received on the market.

Since ETH futures are also traded on the major futures exchanges such as CME, the No. 2 should also soon benefit from ETFs. But ETFs, which now map many less capitalized cryptocurrencies, are out of the question. The regulatory hurdles, low market capitalization and the lack of futures are likely to keep the possible crypto underlyings for ETFs quite limited for the time being.

However, crypto enthusiasts can leave the ETF product innovations cold. After all, there is hardly any reason why a private individual should prefer an ETF to a direct investment in BTC. Especially since the otherwise so attractive diversification of ETFs is not given with the “one-underlying product”. At the end of the day, however, securitized ETFs are an anachronism. After all, tokens are the modern and more efficient medium. The approved ETFs are more of a technological step backwards, which is, however, necessary to connect the old with the new world – temporarily -.