Leveraged Bitcoin Futures ETFs: Reshaping Investment Landscape or Fueling Market Manipulation?

Intricate stock market scene, Bitcoin futures ETF concept, diverse investors examining charts, warm golden lighting, Baroque artistic style, NASDAQ trading floor backdrop, muted earth tones, brooding atmosphere, subtle tension between futures and spot ETF proponents, underlying theme of market manipulation concerns.

Investment firm Valkyrie has recently filed an application for a new Bitcoin futures-based exchange-traded fund (ETF), which is hoped to trade on the NASDAQ under the ticker “BTFD.” Interestingly, this ETF will be leveraged, allowing speculators to double down on their exposure to the leading cryptocurrency, which differs from the firm’s already active BTF fund.

It’s important to note that neither of Valkyrie’s Bitcoin-centric funds has direct exposure to Bitcoin. Instead, they use Bitcoin futures traded on the Chicago Mercantile Exchange (CME). Traders who hold futures contracts, whether it be for Bitcoin, corn, gold, or any other asset, essentially hold an agreement that obligates a trader to buy or sell an asset at a specific time, quantity, and price.

Currently, there are four different Bitcoin futures-based ETFs on the market, with the first being ProShares Bitcoin Futures ETF, which launched in October 2021. However, there aren’t any Bitcoin spot ETFs or funds with direct exposure to the leading cryptocurrency, as the SEC has blocked each application attempt.

The SEC has persistently rejected attempts at a spot Bitcoin ETF, expressing concerns over the possibility of manipulation in the Bitcoin market. Digital asset manager Grayscale has been in a prolonged legal battle with the SEC to convert its Grayscale Bitcoin Trust product (GBTC) into a spot Bitcoin ETF. It even went so far as to call the Commission’s move to approve futures-based ETFs instead of spot ETFs “illogical.”

Grayscale argued that there is no reasonable basis for concluding that CME surveillance adequately protects holders of one kind of exchange-traded product (ETP) but not the other, essentially questioning the SEC’s rationale for its decision. In response, judges overseeing the dispute between both entities in the U.S. Court of Appeals for the D.C. Circuit have also stated that the SEC “really needs to explain […] how it understands the relationship between Bitcoin futures and the spot price of Bitcoin.”

Ultimately, the decision by the SEC to block spot Bitcoin ETFs while approving futures-based ETFs has raised several questions regarding its understanding of the relationship between Bitcoin futures and the cryptocurrency’s spot price. As the debate over spot vs. futures-based ETFs continues, thousands of investors eagerly await the SEC’s explanations. For now, prodigious firms like Valkyrie continue to bring new offerings to the table, leveraging the ETF landscape and potentially reshaping the future of Bitcoin investment vehicles.

Source: Decrypt

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