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Bitcoin fans flock to the futures market

Investors are betting that the first Bitcoin exchange-traded fund listed in the United States is about to succeed.

Securities regulators may decide on up to four applications for ETFs to buy as early as next week.

Bitcoin

Futures contracts, not cryptocurrencies themselves. In the next two weeks, the Securities and Exchange Commission may approve, reject, or postpone ProShares, Valkyrie Investments, proposals.

Invesco

And Van Eck submitted it in August.

SEC Chairman Gary Gensler said in August that he would accept futures-based ETFs.He said again when he was speaking at the Asset Management Conference in Washington, DC two weeks ago.

Recently, the annual premium for CME Bitcoin futures to Bitcoin spot prices was 15%, compared to an average of about 7.7% for the first nine months of the year. Noel Acheson, head of market insights for cryptocurrency lender Genesis Global Trading Inc., said traders could buy Spot Bitcoin and shorten futures contracts as the two prices converge in the future. You can get these returns. We are rushing to buy Bitcoin futures in anticipation of ETF approval.

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Chicago Mercantile Exchange

This month, we plan to raise the maximum number of Bitcoin futures contracts that one company can hold. According to analysts, the move could help make room for new big players such as ETFs. Some of the asset managers involved in the effort so far have addressed several regulatory questions about how the fund works, people familiar with the matter say.

Jumbui, head of exchange-traded financial products at Nasdaq, which works with Valkyrie to create Bitcoin futures ETFs, said: “We are all very hopeful.”

Expectations for the SEC to approve Bitcoin ETFs have contributed to a 25% rise in Bitcoin this month, analysts said.

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For the past eight years, agencies have rejected or postponed decisions on numerous proposals for funds that directly hold Bitcoin. Gensler cited the lack of agency oversight of crypto exchanges that are not registered as exchanges in the United States. This gives regulators no insight into where Bitcoin is coming from or whether prices are being manipulated. As a result, investors remain vulnerable to potential fraud and manipulation in transactions, the agency said.

Surveillance is not a problem with Bitcoin futures. Bitcoin futures allow traders to bet on whether cryptocurrency prices will go up or down. Futures are traded separately from the underlying assets obtained on exchanges such as CME supervised by the SEC.

“”“This isn’t what everyone is looking for when it comes to Bitcoin ETFs, but it’s a step in the right direction.”


— Armando Aguilar from Fundstrat Global Advisors

However, futures-based ETFs are vulnerable to differences in futures prices and the underlying assets they track. In this case, Bitcoin is notorious for its volatile nature.

As ETFs continue to rise, Bitcoin’s performance can also be delayed. Long-term Bitcoin futures tend to trade above short-term contracts, a market dynamic known as contango. This can reduce the return of funds paid to roll over monthly contracts.

“Many people don’t really understand how futures work,” said Kathleen Moriarty, an individual investor ETF lawyer.

Return on investment in a fund can also be impacted by annual fund fees and some of the fund’s plans to hold other assets such as crypto stocks and funds.

Still, analysts say there is likely a market ready for futures-based ETFs, thanks to institutional investors looking to buy crypto assets. According to a recent survey of about 400 US institutional investors by Fidelity Digital Assets, 18% this year invested in digital assets through investment products. Almost one-third say they prefer investment products to direct crypto investment for future investment.

Asset managers are lined up to meet demand. Following the first batch of funds for consideration, the SEC will consider three additional Bitcoin futures ETFs in November. And analysts are hoping to see more. Just Wednesday, Cathie Wood’s ARK Investment Management submitted plans to partner with European crypto asset manager 21Shares to launch its own Bitcoin futures ETF.

“This isn’t what everyone wants when it comes to Bitcoin ETFs,” said Armando Aguilar, vice president of digital asset strategy at Fundstrat Global Advisors, saying that some investors prefer ETFs that are directly exposed to Bitcoin. thinking about. “But that’s a step in the right direction.”

Bitcoin, Dogecoin, Tether: Cryptocurrency Market

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com And Caitlin Ostrov caitlin.ostroff@wsj.com

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Bitcoin fans flock to the futures market

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