Who needs a bitcoin ETF, anyway? It may hold little value for investors now—Here’s why


tags:

Hi there, again! I’m flooded. There is at least 3 inches of water in my basement in New Jersey. All thanks to what the media (hey, that’s me) is referring to as the remnants of Hurricane Ida.

Anyway, wading knee deep in water at 1 a.m. Eastern Time on Thursday, as I embarked upon the Sisyphean task of bailing bilge out of my basement got me to thinking about the flood of ETF applications for a bitcoin-backed products that Gary Gensler’s Securities and Exchange Commission is wading through.

We talked to Will Rhind of GraniteShares, which put in an application for a long and short bitcoin ETF back in 2017, but is taking a hard pass this time around. I’ll leave you to judge whether Rhind’s reasoning is sound. Rhind is founder and chief executive officer of ETF issuer GraniteShares in New York, which was established in 2016. 

You know what to do: Send tips, or feedback, and find me on Twitter at @mdecambre to tell me what we need to be jumping on.


Sign up here for ETF Wrap.

There is a growing surge of bitcoin ETF applications for a futures-based product, after the SEC said that it would probably approve a bitcoin BTCUSD ETF that holds bitcoin futures BTC, rather than the crypto itself. SEC Chairman Gensler views futures as a more regulated area of the market and one where he thinks investor guardrails are more sound.

Futures are usually a wager on an underlying commodity such as oil CL, or gold GC00 and there is a growing bitcoin futures market run by CME Group. CME Bitcoin futures trade separately from the underlying asset and values don’t always align.


Rhind told ETF Wrap during a Wednesday phone interview that there may not be any substantial point to the current rigmarole around trying to be the first to offer a bitcoin-backed ETF beyond the optics of it.

Back in 2017, Rhind said the thesis for providing a bitcoin ETF was clear.

“We felt bitcoin and other [crypto] currencies seemed like that was an asset that people wanted to trade and they couldn’t easily,” he said.

That dynamic has changed substantially over the past three years, he argues, because access is easier for the average investor due to platforms like Coinbase Global COIN and other venues, such as PayPal PYPL, that offer exposure to bitcoin.


“The best expression of an ETF has always been market access,” he said. “It can be lightening in a bottle when you combine a genuine need…there’s demand for a particular class and [the ETF],” addresses that need and unlocks value.

“But by now this is no longer a market-access story,” Rhind said. “People can already get access.”

The GraniteShares pro also said tax benefits that one might derive from a stock ETF wouldn’t likely be in play for a bitcoin futures ETF.

“The chances are that the tax treatment will be the same as it would if you owned the underlying futures directly,” he said.


John Hyland, CFA, and director of Matthews International, told ETF.com that so-called roll costs, as futures contracts expire, could also create idiosyncrasies in ETF prices and trading.

“Bitcoin futures will likely always be in a mild contango, much like gold futures–a small, but not welcome, outcome,” Hyland told ETF.com in an interview. Contango is a condition where prices are higher for longer-dated contracts.

“So even if a bitcoin futures fund is small and can easily trade their futures, they will still likely underperform the spot price every year if using futures,” Hyland told ETF.com in an interview.


All of that is worth thinking about amid all the hullabaloo around a bitcoin ETF. Is it worth it, even if one gets approved by October?

Some crypto purists also like to point to the paradox of owning a decentralized asset, such as bitcoin or Ether ETHUSD, on a centralized platform, like a fund traded on a public exchange.

Data from Cboe Global Markets makes the case that the meme stock phenomenon that exploded into focus earlier this year, amid the rabid appetite for AMC Entertainment Holdings AMC and GameStop Corp. GME, has been around for much longer.


Cboe’s team, including summer intern, Jeff Nguyen, determined that the meme-stock phenomenon, characterized by stocks that move on social mentions and idea collaboration over social platforms, rather than fundamentals, has been going on since at least 2019 (see attached chart). The group created a program that scanned Reddit’s popular r/WallStreetBets forum for stock tickers and totaled the number of mentions for each ticker by day.

“We then studied the 15 most discussed social media ‘meme’ stocks from January 2019 to present,” and the researchers compiled each stock’s total trading volume relative to the total composite volume, or TCV, to determine whether a significant trend was afoot.


The exchange-traded fund industry has seen $596 billion of net inflows year-to-date through August, extending its record-breaking year, CFRA points out.

Todd Rosenbluth, head of ETF and mutual fund research at CFRA says broad market global equity and U.S. ETFs contributed the most to those flows in the first eight months of 2021, with iShares Core MSCI Emerging Markets ETF IEMG  and Vanguard S&P 500 ETF VOO among the leaders.

The good folks at Bespoke Investment Group have a helpful table that provides a snapshot on how some U.S. and international ETFs performed in the month.

“The Nasdaq-100 QQQ had the best August of the major US index ETFs, while the Dow 30 DIA was up the least. The Energy sector XLE was the only sector in the red for the month, while every other sector ETF gained more than 1%,” the researchers wrote. 

Leave a Reply

Your email address will not be published.