CoinShares Meltem Demirors on bitcoin's record week and what's next for the cryptocurrency. With CNBC's Carl Quintanilla and the Fast Money traders, Steve Grasso, Jeff Mills and Mike Khouw.
This week marked a milestone for cryptocurrency as investors started trading the first U.S. bitcoin futures exchange-traded fund, exceeding other ETF launches, and another followed Friday.
These funds invest in bitcoin futures contracts, or agreements to buy or sell the asset later for an agreed-upon price, rather than bitcoin directly.
The new products allow trading through regular investment accounts, bypassing the hassle and security concerns of cryptocurrency exchanges.
While the new offerings fall short of what the industry eventually wants — ETFs investing in the currency itself — it didn’t slow excitement for the first launch.
The ProShares Bitcoin Strategy ETF (ticker: BITO) saw one of the biggest first days on record for ETFs, raking in $550 million from crypto-hungry investors. Overall, more than $1.01 billion of shares changed hands, according to Morningstar.
Moreover, the price of bitcoin spiked by more than 4% on Tuesday to $64,206.51, according to Coin Metrics, and soared to an all-time high of $66,900 on Wednesday, passing the previous intraday record of $64,899 from mid-April.
“The original intent [of bitcoin], and certainly still the intent of many, was to try to upend traditional finance,” said Ben Johnson, director of global ETF research for Morningstar.
“Instead, traditional finance has caught bitcoin in its tractor beam, reeled it in and turned it into something that Wall Street is going to make millions if not billions on by creating this whole new ecosystem,” he said.
Delayed bitcoin ETF approvals
Companies have been vying to release the first U.S. bitcoin ETF for nearly a decade. But the Securities and Exchange Commission has been slow to embrace the asset, citing concerns about the lack of regulation and the potential for fraud and manipulation in the bitcoin market.
“General conservatism has been a pattern among U.S. regulators,” said Johnson, pointing to the landscape littered with bitcoin ETF filings being updated, abandoned applications and others collecting dust.
Previously, most bitcoin ETF applications have been based on so-called spot markets, or investing in the currency directly, explained Stephen McKeon, associate professor of finance at the University of Oregon in Eugene and partner at Collab+Currency, a cryptocurrency-focused investment fund.
However, there was a shift in August when SEC chairman Gary Gensler signaled the agency may be more open to a futures-backed bitcoin ETF under the Investment Company Act of 1940, which governs mutual funds and may offer “significant investor protection.”
The change prompted a flood of filings ahead of this week’s approvals.
With the Commodity Futures Trading Commission overseeing U.S. bitcoin futures and the ETF wrapper falling within the SEC’s jurisdiction, regulators may offer some investor protection, Gensler said on CNBC’s “Squawk on the Street” this week. But it’s still a “highly speculative asset class,” he warned.
While the SEC is expected to approve a handful of other bitcoin futures ETFs, it’s unclear if and when the agency may greenlight an ETF investing in the currency itself.
“I don’t think the SEC is in any big hurry to move forward and allow direct investment in bitcoin by ETFs anytime soon,” Johnson said.
