Bitcoin Bedazzles Part II

In the lead-up to the listing, excitement has been building. More so after the U.S Securities and Exchange commission effectively greenlighted the listing in a tweet last week that said

“Before investing in a fund that holds bitcoin futures contracts, make sure that you carefully weigh the potential risks and benefits,”

The ProShares Bitcoin ETF will track the cash-settled Bitcoin futures listed on the Chicago Mercantile Exchange, which tracks underlying movements in Bitcoin.

Hence the ETF is essentially a derivate of a derivative. Investors won’t own the underlying asset (Bitcoin); however, they will obtain exposure to movement in the underlying asset.

The ticker of the ETF is BITO. According to ProShares CEO Michael Sapir

“BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider ... or are concerned that these providers may be unregulated and subject to security risks.”

All valid reasons and surely another step towards more widespread digital asset adoption, but perhaps not as big as some think..

Bitcoin, like all cryptocurrencies, trades 24 hours a day, 7 days a week, 365 days a year. The Bitcoin ETF will only trade for the ~7 hours a day the exchange is open and will not trade on weekends.

This means that if big moves in either direction occur outside of the NYSE trading hours, then investors will not be able to capitalize or stop out of a position as the case may be. Somewhat restrictive in the volatile world of cryptocurrencies.   

After all but reaching the target outlined in an article two weeks ago titled Bitcoin Bedazzles “a retest of year-to-date highs near $65,000”, the easy money that followed the rally from below $40,000 has now been taken off the table.

Additionally, there is the risk of a “buy the rumour sell the fact” type reaction like the one that followed El Salvador adopting Bitcoin as legal tender in early September.

While we remain medium-term bullish Bitcoin, we are now neutral in the short term and looking to re-enter longs, ideally on a corrective pullback. The same goes for Ethereum.

Source Tradingview. The figures stated areas of October 19th, 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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