Bitcoin futures ETFs retain their appeal despite cryptocurrency winter

Investors piled into bitcoin futures ETFs in 2022, even as the cryptocurrency’s price plunged 65 percent.

Investors poured $241 million into six U.S. bitcoin futures ETFs through the first 11 months of 2022, according to Morningstar Direct. And most of that money — $198 million — was added after June, which bitcoin payment service provider Bitpay marked as the beginning of the cryptocurrency’s “deep freeze.”

In October 2021, ProShares launched the first bitcoin futures ETF, the ProShares Bitcoin Strategy ETF. It collected $1.2 billion in assets in two days.

But its assets fell to $549 million by the end of the year due to market wear. According to Morningstar data, ETF sales have remained steady throughout the crypto winter as the ETF has collected monthly net inflows for all but three of the first 11 months of 2022.

This article was previously published by Ignites, owned by FT Group.

Investors poured $259 million into the ProShares Bitcoin Strategy ETF during the year ended Nov. 30, the database shows.

“A futures-based ETF is a very solid, belt-and-suspension solution for people looking for exposure,” said Simeon Hyman, global investment strategist at ProShares. “We’ve had big reminders of the still-unmature spot market and challenges with exchanges.”

The US Securities and Exchange Commission has not approved any ETFs that invest in spot bitcoin, citing concerns about fraud and manipulation. But the regulator has allowed ETFs that invest in bitcoin futures traded on the Chicago Mercantile Exchange, arguing that the futures are safer for investors.

Combining the regulated futures market with an ETF package solves many of the problems associated with the spot bitcoin market, Hyman said.

“There’s only one thing that doesn’t change,” he said. “Bitcoin is going to be a volatile thing.”

ETFs that invest in companies benefiting from bitcoin’s rise have also posted net inflows so far this year, but weakened in the second half.

These products include the $415 million Amplify Transformational Data Sharing ETF, the $119 million First Trust Indxx Innovative Transaction & Process ETF, and the $99 million Siren Nasdaq NexGen Economy ETF, each of which invests in companies involved in the blockchain and cryptocurrency ecosystem.

Investors poured $100 million into 16 bitcoin-related ETFs in the year ended Nov. 30, according to Morningstar data. But almost all of that money — $92 million — went into the Global X Blockchain ETF. Six of the ETFs had net outflows during the period.

Analysts may do so with investors holding these ETFs hoping that the crypto market will recover soon.

After reaching record highs in 2021, digital assets have taken a significant hit this year due to a sharp fall in cryptocurrency prices and the dramatic collapse of one of the largest cryptocurrency exchanges, FTX.

According to Yahoo Finance, the price of bitcoin, the world’s largest cryptocurrency, fell from $68,990 on November 8, 2021 to $16,548 on December 31.

Despite a successful and long-awaited update in September, known as a “merger,” Ethereum did not fare much better, despite its network being upgraded from a proof-of-work consensus mechanism to a proof-of-stake system. Still, the price of ether — Ethereum’s native coin — fell from $4,294 on November 21, 2021 to $1,197 on December 31, according to Yahoo Finance.

The cryptocurrency’s woes were compounded when FTX suddenly filed for Chapter 11 bankruptcy in November.

“A lot of crypto investors are the ‘buy the dip’ crowd, which we’ve seen really form over the last few years,” said Bryan Armour, research director of passive strategies for North America at Morningstar. “It’s almost like for some segments of the market it’s more like a religion than an investment at this point.”

Matt Apkarian, deputy director of product development at Cerulli Associates, said inflows into Bitcoin futures ETFs “may also be attributed to investor loss aversion.”

“A biased investor might say, ‘I want to hold it until I get it back to what I bought it for.’ [and] I don’t want to sell it at a loss because it’s not a loss until I sell it,” Apkarian said.

Bitcoin futures ETFs have been “insulated” from the crypto winter and FTX crash because they are separate from the underlying securities, said Vinod Jain, strategic advisor at Aite Novarica. “You’re not buying the actual assets,” he said.

Apkarian said that the cryptocurrency winter and the FTX crash cannot affect the opinion of people who support the cryptocurrency.

“It’s just a bump in the road, probably hastening the inevitable regulation that has to happen around it,” he said.

*Ignites is a news service published by FT Specialist for professionals in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available here

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