There is one prize in the eyes of a number of ETF management firms. That prize is the listing of a Bitcoin ETF and is seen as a crowning achievement for any Exchange Trade Fund Firm. Now, Proshares Capital Management has filed papers at the SEC to create two bitcoin ETFs. The proposal is to list a maximum aggregate offering price of $1m per ETF.
The Proshares Trust II bitcoin ETF will derive its NAV from derivatives rather than a pyshical holding of Bitcoin. Proshares is an ETF management firm that began operating in 2006 and currently has more than 140 alternative investment funds in its portfolio. Most of these instruments are listed on exchanges such as the NYSE, CBOE and Nasdaq.
Given that the fund will not be directly investing in Bitcoin and rather in futures, there will not be 100% correlation between the value of the ETF. They mentioned in their SEC filing that the funds may not be suitable for all investors.
The funds are not appropriate for all investors and present many different risks than other types of funds, including risks relating to investing in bitcoin futures contracts, exposure to bitcoin, and, in the case of the Inverse Fund, risks associated with the use of leverage
As many may know, futures are a derivative instrument that gets its value from the underlying asset. There are a range of other factors which can drive the value of a futures contract that is not present with an option.
The Holy Grail
It is not just Pro shares that is trying to reach the “holy grail” of a Bitcoin ETF. For example, a month ago the Commodity Futures Trading Commission (CFTC) approved Ledger X’s application for a Swap Execution facility for Bitcoin. CBOE holdings, another EFT firm, also made it known that they would like to list Bitcoin futures.
Given the unique nature of how Bitcoin is traded required Proshares to tweak its S1 filing. They mentioned that Bitcoin was a new technological innovation that is much more volatile than other asset classes. This means that futures on Bitcoin could be even more volatile.
They also acknowledged that the current regulatory framework for assets such as Bitcoin are still quite hazy and sometimes inconsistent. Whether Proshares is likely to continue with the listing in light of withdrawals of other Bitcoin ETF applications. For example, Van Eck associates (another ETF provider), withdrew its application after the SEC asked them to on the basis that bitcoin derivative instruments still do not exist.
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