Bitcoin Soars, Will Futures Pave The Way For ETFs?

By Zacks Investment ResearchStock MarketsNov 06, 2017 10:49PM ET

www.investing.com/analysis/bitcoin-soars-will-futures-pave-the-way-for-etfs-200263370

Bitcoin Soars, Will Futures Pave The Way For ETFs?

By Zacks Investment Research | Nov 06, 2017 10:49PM ET

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Bitcoin, the most sought-after digital currency this year, is soon expected to be easily available to individuals and businesses. The Chicago Mercantile Exchange (NASDAQ:CME) plans to introduce bitcoin futures contracts by the end of this year given soaring demand and rising institutional investor interest.

The new contract will be cash-settled and based on the CME CF Bitcoin Reference Rate (BRR), which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. Bitcoin futures will be listed on and subject to the rules of CME (read: Bitcoin Soars to Record High: Fork, Futures and ETFs Explained).

The introduction of bitcoin derivatives will bring a great deal of liquidity and legitimacy to the cryptocurrency ecosystem. It would give investors a way to buy and trade into the digital currency market, which otherwise is not readily available. The derivatives would upgrade the bitcoin status to more established asset class. A better and mature regulatory environment will be a huge boon to the digital currency, leading to an increased investment in the booming cryptocurrency with a growing number of retail investors.

The news sent cryptocurrency to new highs at above $7,600 from around $6,300 at the start of last week. With this, the digital currency is up 650% so far this year and total market capitalization has reached $125 billion (read: ETFs Riding High On Bitcoin Surge).

Are Bitcoin ETFs Next?

The CME move would pave the way for bitcoin ETFs, some of which were already rejected by the Securities and Exchange Commission (SEC) citing lack of regulation of the bitcoin spot market and unavailability of bitcoin futures contracts.

Earlier in the year, the SEC denied various requests for the first proposed bitcoin ETF — Winklevoss Bitcoin Trust (COIN). The bitcoin ETF, proposed by SolidX Management, was also rejected in March. VanEck filed for an ETF, which invests in bitcoin derivatives, in mid-August but withdrew its application. REX also filed for two ETFs, namely REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF, which will also invest in bitcoin-based derivatives.

In late September, ProShares filed for two ETFs, ProShares Bitcoin ETF and ProShares Short Bitcoin ETF. These funds also intend to purchase derivative contracts for exposure, rather than actual purchase of bitcoins (read: Bitcoin ETFs: More Issuers Join the Race).

As such, with the launch of bitcoin futures sometime in eight weeks, bitcoin ETFs is not far from entering into market. Many analysts believe that the SEC will approve ETFs that trade bitcoin futures contracts within the near future.

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