Ben Strack

<div id="highlights-block_621e941905ff3" class="highlights">
 <ul>
 <li>Offerings will allow traders to hedge market-moving events with greater precision, according to CME Group’s global head of equity and foreign exchange products</li>
 <li>CME Group began offering micro bitcoin and micro ether futures contracts last year</li>
 </ul>
 
</div>



Derivatives exchange CME Group is set to roll out options on micro bitcoin and ether futures this month in a move to give more traders exposure to such instruments with nominal capital.



The options contracts, set to launch March 28, will be one-tenth the size of their underlying tokens. CME introduced bitcoin futures contracts, sized at five bitcoin, in 2020.



Futures require the buyer to purchase an asset at a certain date, while options give an investor the right, but not the obligation, to buy or sell an asset before the contract expires.



CME Group began offering bitcoin futures contracts in 2017 and <a href="https://cms.blockworks.co/cme-group-to-launch-cash-settled-micro-bitcoin-futures/" target="_blank" rel="noreferrer noopener">launched</a> cash-settled micro bitcoin futures contracts worth one-tenth of one bitcoin last year. The derivatives marketplace <a href="https://cms.blockworks.co/cme-group-plots-launch-of-micro-ether-futures/" target="_blank" rel="noreferrer noopener">moved in November</a> to add micro ether futures as liquidity in ether futures grew steadily with investors.&nbsp;



About 5.2 million micro bitcoin and micro ether futures contracts have changed hands in less than a year, according to Tim McCourt, CME Group’s global head of equity and foreign exchange products.



“Building on the strength and liquidity of the underlying contracts, our micro-sized options will enable traders of all sizes to efficiently hedge market-moving events with greater precision and flexibility or fine-tune their cryptocurrency market exposure,” McCourt told Blockworks in an email.



As traders favor short-dated options to manage risk, according to McCourt, the launch will feature Monday, Wednesday and Friday weekly expiries for micro crypto options.



Executives at Genesis Global Trading, Cumberland and Akuna Digital Assets said their firms will provide liquidity.



&#8220;We believe that options on these contracts will allow existing market participants greater flexibility when seeking cost-efficient exposure as well as opening the market to new participants who prefer the more granular sizing,&#8221; Akuna CEO John Harris said in a statement.



The launch comes after CME Group launched two new reference rates for bitcoin and ether Monday that provide a daily reference rate of the US dollar price of the two digital assets, published at 4 pm ET.



“We’re continually talking with and listening to clients and market participants about new ways to help them manage cryptocurrency risk,” McCourt said, declining to share specific future crypto products the company has in the works.



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CME Group To Roll Out Micro Bitcoin, Ether Options

<div id="highlights-block_61c36e84b351b" class="highlights">
 <ul>
 <li>The ProShares Bitcoin Strategy ETF (BITO) underperformed spot bitcoin by 2.34% from its launch on Oct. 19 to Dec. 21, according to Bloomberg Intelligence Analyst James Seyffart</li>
 <li>BITO’s December inflows total roughly $50 million so far, compared to $1.2 billion in October, FactSet data shows</li>
 </ul>
 
</div>



The underperformance of the US’s first bitcoin futures ETF relative to the crypto asset’s spot price in its first two months of trading limit the types of investors interested and ultimately its asset growth, according to industry professionals.&nbsp;



But offerings that include a smaller allocation to bitcoin futures contracts could see more demand in 2022, some argued, particularly among longer-term investors.



Bloomberg Intelligence ETF Analyst James Seyffart noted in a Twitter post on Wednesday that the ProShares Bitcoin Strategy ETF (BITO) underperformed spot bitcoin by 2.34% from its launch on Oct. 19 to Dec. 21.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The first <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> futures ETF &#8212; <a href="https://twitter.com/search?q=%24BITO&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BITO</a> &#8212; is trailing spot by 2.34% with just about two months of data. Extrapolating that out: it will underperform spot by 13-14% in it&#39;s first year&#8230; <a href="https://t.co/2saAfp20u0">pic.twitter.com/2saAfp20u0</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1473652943689863173?ref_src=twsrc%5Etfw">December 22, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Extrapolated out over 12 months, Seyffart added, BITO would trail spot bitcoin by between 13 and 14% in its first year on the market.&nbsp;&nbsp;



“That’s a pretty big gap between bitcoin and your fund,” Bloomberg Intelligence ETF Analyst Eric Balchunas told Blockworks, noting that many financial advisors likely would not invest in the offering on behalf of clients. “That said, I think BITO is a great trading tool, and I think it will continue to be used for short-term exposure. It tracks great short-term, and its correlation is awesome.”



Though BITO was the first bitcoin futures ETF to launch in the US, the Valkyrie Bitcoin Strategy (BTF) launched three days later. It currently has about $55 million in assets under management, according to Valkyrie Investments’ website.



The VanEck Bitcoin Strategy ETF (XBTF) and the Global X Blockchain and Bitcoin Strategy ETF (BITS) launched in November. XBTF and BITS have $17 million and $9 million in assets, respectively.



Unlike the other three bitcoin futures products, BITS also invests in ​​US companies that directly own digital assets and may gain access to blockchain companies indirectly through ETFs.



Industry professionals <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">have labeled roll costs</a> as one of several downsides to bitcoin futures ETFs. Maintaining a smaller allocation to bitcoin futures allows the firm to be “nimbler” to potentially find better value and reduce roll costs, Global X Research Analyst Matt Kunke <a href="https://cms.blockworks.co/global-x-offers-different-type-of-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">told Blockworks last month</a>.



“I’m going to be watching it next year to see if it gets any looks,” Balchunas said of <a href="https://www.globalxetfs.com/introducing-bits-the-case-for-blockchain-equities-and-bitcoin-futures/" target="_blank" rel="noreferrer noopener">the Global X offering</a>.



<blockquote class="wp-block-quote">“BITS just seems like it’s one of those ETFs that could be palatable enough to an advisor given that small roll [cost], but at the same time have more kick than a blockchain stock ETF.”</blockquote>



<h3>Remaining demand for bitcoin futures ETF?</h3>



BITO notched inflows of more than $1.2 billion from its launch until the end of October, according to FactSet Data. Flows into the product have slowed, as they totaled $542 million in November and $50 million so far in December.&nbsp;



“Obviously it has completely plateaued, as all of the people who wanted to buy BITO have bought it basically,” Balchunas said. “Maybe those flows trickle in for the next couple months.”



Dave Nadig, CIO and director of research for ETF Trends and ETF Database, said that investors, particularly those who have invested in commodities, understand the deficiencies of futures versus spot.



“The funds really target a small Venn diagram of people who want crypto exposure on a fairly short-term basis but are unwilling or unable to access the crypto markets directly,” he told Blockworks. “I would not expect the [assets under management] to move significantly, as I suspect these funds will be trading vehicles.”



Though Nadig added he does not expect any new “plain-vanilla” bitcoin futures ETFs, other types of products, such as WisdomTree’s Enhanced Commodity Strategy Fund (GCC), could make allocations to bitcoin futures.



GCC, an actively managed ETF seeking to provide broad exposure to a diversified basket of commodities, <a href="https://cms.blockworks.co/wisdomtree-plans-to-launch-more-crypto-offerings-in-2022/" target="_blank" rel="noreferrer noopener">became the first ETF</a> to add bitcoin futures in October.



<h3>Still no spot bitcoin ETF</h3>



The US Securities and Exchange Commission (SEC) has rejected a variety of <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">spot bitcoin ETF proposals</a>, while regulators in Europe, Canada and other regions have allowed such products to trade.



“The SEC is unlikely to approve a spot Bitcoin ETF in 2022, we believe, leaving US investors reliant on less-efficient futures, trusts and themed equity ETFs for fund exposure,” Seyffart wrote in a Dec. 9 research note, adding that Ethereum futures ETFs could reach US exchanges before a spot bitcoin product.&nbsp;



As part of its <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">denial of VanEck’s planned spot bitcoin fund</a>, the SEC said in a letter that the Cboe BZX Exchange, on which the ETF’s shares would have traded, “has not met its burden” that the proposal meets the requirements of the Securities Exchange Act of 1934.



“The SEC cannot have been much more clear in their guidance. Any approval would be a shocking surprise,” Nadig said.



<blockquote class="wp-block-quote">“I give essentially zero odds to a pure Bitcoin ETF in 2022.”</blockquote>



Balchunas said he always expected the ProShares Bitcoin Strategy ETF to be used by traders more than long-term investors, noting that his optimism for an ETF that invests directly in bitcoin remains strong.&nbsp;



“I think a spot bitcoin ETF, and ultimately different takes on it — like a spot Ethereum, a crypto picking active ETF, a crypto basket…S&amp;P of crypto — is going to fly off the shelves,” he said, “and be the big category that we all are expecting.”



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<hr class="wp-block-separator">

What Does Demand For Bitcoin Futures ETFs Look Like in 2022?

<div id="highlights-block_61a547b87f773" class="highlights">
 <ul>
 <li>The Ethereum network will be an integral part of our lives going forward, says Kelly Intelligence’s founder and CEO </li>
 <li>VanEck and ProShares had revealed plans in August to launch Ethereum futures products but subsequently withdrew the applications</li>
 </ul>
 
</div>



Kelly Intelligence is looking to launch an Ethereum futures ETF a little more than a month after the first bitcoin futures ETFs hit the US market.&nbsp;



The Denver-based firm’s proposed actively managed fund would invest in cash-settled ether futures contracts traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC), according to <a href="https://www.sec.gov/Archives/edgar/data/1873280/000089418921008363/kellyethereumfuturesetf485.htm">a regulatory disclosure</a> filed on Monday.&nbsp;&nbsp;



The only such exchange to offer these contracts is the Chicago Mercantile Exchange (CME), which rolled out ether futures contracts earlier this year after unveiling bitcoin futures contracts in December 2017.&nbsp;



CME earlier this month announced that it would <a href="https://cms.blockworks.co/cme-group-plots-launch-of-micro-ether-futures/">add micro ether futures</a> — sized at one-tenth of one ether — on Dec. 6.&nbsp;



CME Group executives said at the time that the micro ether futures offering would provide an efficient, cost-effective way for individual and institutional investors to hedge their ether price risk or more nimbly execute ether trading strategies. The plans came as liquidity in ether futures contracts has steadily grown among institutional traders since their launch in February, the CME leaders added.



<blockquote class="wp-block-quote">“Kelly Intelligence’s interest in ether is predicated on the fact that we are at the start of the fourth industrial revolution &#8211; what we call the intelligence revolution — where the Ethereum network will be an integral part of our lives going forward,” Kevin Kelly, the firm’s founder and CEO, told Blockworks in an email.</blockquote>



Kelly declined to comment specifically on the filing or potential conversations the firm has had with regulators.&nbsp;



The planned Kelly Ethereum Ether Strategy ETF may replace futures contracts approaching expiration with similar contracts that have a later expiration, the filing notes.



In addition to ether futures contracts, the fund may invest in pooled investment vehicles and exchange-traded products that provide exposure to ether. It would not invest in ether or other digital assets directly.



Penserra Capital Management is slated to subadvise the fund. The filing does not indicate an expense ratio for the proposed offering.



<h3>Bitcoin futures ETFs</h3>



The filing follows the launch of several bitcoin futures ETFs. The first of which, the ProShares Bitcoin Strategy ETF (BITO), has grown to roughly $1.4 billion in assets under management since its Oct. 19 debut. The US Securities and Exchange Commission (SEC) has not yet greenlit ETFs that would invest in bitcoin directly.



VanEck and ProShares had revealed plans in August to launch <a href="https://cms.blockworks.co/vaneck-and-proshares-apply-for-ethereum-futures-etfs/">Ethereum futures products</a> but subsequently <a href="https://cms.blockworks.co/vaneck-proshares-seek-to-withdraw-requests-to-launch-ethereum-etfs/">withdrew the applications</a>. Some industry professionals said at the time that the SEC likely told the issuers that such products would not be approved any time soon.



Trey Griggs, CEO for GSR’s US business, <a href="https://cms.blockworks.co/when-could-an-ethereum-futures-etf-hit-the-us-market/">told Blockworks last month</a> that he believed Ethereum had sufficient trading history for the SEC to approve a futures-based product. But the market for ether futures is likely not liquid enough to support the volume of inflows that an ETF could trigger, Noelle Acheson, head of market insights at Genesis, said at the time.&nbsp;



Bloomberg Intelligence ETF Analyst James Seyffart said in October that an Ethereum futures-based ETF could launch sometime in the first half of 2022, noting that he believes one will launch before a spot bitcoin ETF.&nbsp;

Kelly Intelligence Plans Ethereum Futures ETF

In the latest episode of Blockworks’ podcast “<a href="https://youtu.be/058mp9LdErE">Empire</a>,” Jason &amp; Casey are joined by Senior Bloomberg ETF Analyst Eric Balchunas &amp; CEO of Valkyrie Funds Leah Wald. 



With the recent approval of the Valkyrie Bitcoin futures ETF, we invited Eric &amp; Leah onto the show to discuss everything you need to know from how an ETF works, the benefits of an ETF for institutional investors, the SEC&#8217;s Bitcoin ETF regulation framework &amp; if the SEC will approve a spot Bitcoin ETF.



They also discuss: 



<ul><li>Owning Bitcoin vs buying a Bitcoin ETF</li><li>Bitcoin ETF surpassing the Gold ETF</li><li>and so much more!</li></ul>



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Bitcoin ETF: Everything You Need to Know | Leah Wald &amp; Eric Balchunas" width="1024" height="576" src="https://www.youtube.com/embed/058mp9LdErE?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



On &#8220;Empire,&#8221; once a week, Jason interviews individuals that have built the crypto industry to talk about their struggles, bold moves and tough decisions. For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; like a “How I Built This” for the bitcoin and crypto industry.



Episodes are released every Thursday morning.&nbsp;



Subscribe to Empire today on&nbsp;<a href="https://apple.co/389JSpL" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://spoti.fi/3uVnxpC" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">YouTube</a>.



<hr class="wp-block-separator"/>



Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



<hr class="wp-block-separator"/>

Podcast: Bitcoin ETF- Everything You Need to Know | Leah Wald & Eric Balchunas

Casey Wagner

<div id="highlights-block_61696f2e62d99" class="highlights">
 <ul>
 <li>Valkyrie filed a key form early Friday that signals approval may be just around the corner</li>
 <li>The SEC seems to favor the futures-based structure over spot options</li>
 </ul>
 
</div>



As speculation swirls around whether the SEC will approve a bitcoin futures-based ETF, Valkyrie made an early-morning filing Friday that signals the fund may begin trading soon. Shortly after, Nasdaq announced that it has accepted the listing and is awaiting approval from the SEC. 



Valkyrie, who <a href="https://cms.blockworks.co/valkyrie-plots-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">first </a>disclosed for its plans for a Bitcoin Strategy ETF in August, filed an <a href="https://www.sec.gov/Archives/edgar/data/1877493/000138713121010022/valk-8a12b_101521.htm" target="_blank" rel="noreferrer noopener">8-A with the SEC</a>. Companies must complete the form before offering securities on an exchange.&nbsp;



The move very likely means that approval for a bitcoin futures ETF is just around the corner, people familiar with the matter said.&nbsp;



Valkyrie is joined by ProShares, Invesco, VanEck and others — most recently, <a href="https://cms.blockworks.co/ark-invest-21shares-team-with-white-label-alpha-architect-to-propose-futures-based-bitcoin-etf/">Ark Invest and 21Shares</a> — in vying for a futures-based ETF approval. 



SEC Chairman Gary Gensler said during <a href="https://cms.blockworks.co/sec-chair-gensler-prioritizes-crypto-platform-crackdown/" target="_blank" rel="noreferrer noopener">a virtual forum</a> in August that his agency would “look forward” to reviewing ETFs that were limited to investing in bitcoin futures contracts, leading to an explosion of filings.&nbsp;



The filing Friday comes shortly after the SEC’s investor education account tweeted a link to its <a href="https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/funds" target="_blank" rel="noreferrer noopener">guide for investor protection when trading bitcoin futures</a>, first published in June 2021.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits. Check out our Investor Bulletin to learn more: <a href="https://t.co/AZbrkpfn8F">https://t.co/AZbrkpfn8F</a>&mdash; SEC Investor Ed (@SEC_Investor_Ed) <a href="https://twitter.com/SEC_Investor_Ed/status/1448710749921087488?ref_src=twsrc%5Etfw">October 14, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



A futures-based ETF approval would be the first of its kind in the US. Issuers have tried to launch a series of different structures over the years, including funds that use leverage or spot bitcoin products. In recent months it became more clear that Gensler would likely favor a futures product given CME’s success with the structure.&nbsp;



Ahead of the filing, bitcoin reached $60,000 for the first time since hitting its all-time high near $65,000 last spring. 



ProShares and Valkyrie declined to comment.



&#8220;I had expected that the SEC would seek to allow all futures-based ETFs filed within a period of time to go effective at the same point to avoid giving a first mover advantage, but at this point it seems that might not happen,&#8221; Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, told Blockworks on Thursday. &#8220;There’s likely to be pent up demand for any bitcoin ETF despite the differences between a futures-based product and a direct bitcoin offering.&#8221;



Along with the various bitcoin futures-based ETFs, a dozen or so physically backed bitcoin products still await SEC approval. Industry professionals have noted some&nbsp;<a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">complications</a>&nbsp;of a futures-based ETF, such as roll costs and contango, which may make them less than ideal than spot options for many investors.



The CIO for Bitwise Asset Management, which <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/">has filed</a> for both types of products, noted that though the firm is excited about potentially bringing to market a bitcoin futures-based ETF, such offerings likely won&#8217;t gather nearly as many assets as physically-backed offerings over the long term. 



“Honestly, what most investors want is just access to the price of bitcoin and not the complications that come with a futures-based product,” Bitwise CIO Matt Hougan said.

Valkyrie Files 8-A in Key Step for Bitcoin Futures ETF Approval

<div id="highlights-block_61682bbf3ef1f" class="highlights">
 <ul>
 <li>Crypto asset manager’s latest filing includes 150 pages of research addressing SEC’s questions about bitcoin price discovery</li>
 <li>A physically backed bitcoin ETF will ultimately take the majority of assets compared to futures-based ETFs, Bitwise CIO Matt Hougan tells Blockworks</li>
 </ul>
 
</div>



Bitwise Asset Management <a href="https://www.sec.gov/Archives/edgar/data/1763415/000138713121009995/bbet-s1_101421.htm" target="_blank" rel="noreferrer noopener">has filed</a> for an exchange-traded product that would hold bitcoin directly, just days before some industry watchers expect the SEC will approve products that invest primarily in bitcoin futures contracts.



The San Francisco-based crypto fund group had previously filed for a physically backed bitcoin ETF in 2019, but withdrew its request in January 2020 amid SEC concerns. The agency has rejected several similar bitcoin ETF proposals from other issuers in recent years.&nbsp;



Bitwise CIO Matt Hougan <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">said in August</a> that the company had met with the SEC about a dozen times over the past 16 months to discuss the crypto market and present research. He noted at the time that the firm would not refile for a bitcoin ETP until it was confident the application would be approved.&nbsp;&nbsp;



Bitwise has spent the last two years doing research on where price discovery occurs in the bitcoin market, which was a question the SEC highlighted in a 112-page response to the firm’s last bitcoin ETF filing, Hougan told Blockworks in an interview this week.&nbsp;



The firm first spent four months evaluating the quality of various bitcoin data providers before then surveying academic literature in the space, seeking out the various ways to investigate price discovery and applying those to the leading spot markets using historical data.



Bitwise chose Coin Metrics, which covered 26 exchanges at the time, as the lead data provider for its analysis. As part of Bitwise’s latest filing to launch the Bitwise Bitcoin ETP Trust, the fund group published its findings — roughly 150 pages of data-driven research that it hopes will help the product gain approval.



“What it shows is that the CME bitcoin futures market leads price discovery compared to both spot bitcoin markets like Coinbase and offshore bitcoin derivatives exchanges like BitMex and FTX,” Hougan explained. “Because this has been the primary objection the SEC has had to past spot bitcoin ETF filings, we think we’ve now satisfied their concerns.”



The SEC has up to 240 days from the filing date to approve or deny the proposal, and historically they have taken all of that time, Hougan said. The SEC’s deadline to respond to fund manager <a href="https://cms.blockworks.co/vaneck-ceo-hopes-sec-will-make-that-leap-in-approving-its-bitcoin-etfs/" target="_blank" rel="noreferrer noopener">VanEck’s bitcoin ETF application</a> is in mid-November.



It’s possible the SEC will ask Bitwise and other filers to take another step before approving, the CIO explained. The firm is publishing its research so as to put it on the record and have the SEC respond to it, Hougan said, which can move the industry forward if additional steps are needed.&nbsp;



“The regulatory path is always uncertain and there’s no guarantee that this filing will be approved,” Hougan said.



<h3>Futures vs. spot ETF</h3>



The filing comes after Bitwise filed for a <a href="https://www.sec.gov/Archives/edgar/data/0001540305/000089418921006626/bitwise485a.htm" target="_blank" rel="noreferrer noopener">bitcoin strategy ETF</a> in September that focuses on bitcoin futures contracts.&nbsp;&nbsp;



Other futures-based bitcoin ETFs, which SEC Chairman Gary Gensler has implied the agency would favor, could be approved as early as next week, as the SEC’s 75-day limit to decide on a proposed fund by ProShares runs out on Monday.



Valkyrie, another issuer that filed for a futures-based ETF, added a ticker to the fund’s proposed prospectus on Wednesday, which Bloomberg Intelligence ETF Analyst Eric Balchunas said in a Twitter post is something that often happens when a fund is getting set to launch.



The SEC’s deadline to rule on Bitwise’s futures-based ETF expires next month.&nbsp;



<blockquote class="wp-block-quote">“We’re still excited to hopefully bring a futures-based ETF to market because the regulatory pathway looks shorter, and compared to existing alternatives in the market today, a futures-based ETF can be really attractive,” Hougan said.&nbsp;</blockquote>



Futures-based ETFs don’t have the premium and discount issues that go with OTC-traded trusts, he added, or the paperwork and accreditation burdens that come from private placements.



Still, industry professionals have noted some <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">complications</a> of a futures-based ETF, such as roll costs and contango, which may make them less than ideal for many investors.



“I think long-term if there is a spot bitcoin ETF approval, those spot bitcoin ETFs will hold a majority of assets,” Hougan said. “Honestly, what most investors want is just access to the price of bitcoin and not the complications that come with a futures-based product.”

Bitwise Tries Once More for Spot Bitcoin ETP

<div id="highlights-block_615714a7275d3" class="highlights">
 <ul>
 <li>The SEC has delayed its ruling several times this year for the VanEck Bitcoin Trust, which was filed for in December</li>
 <li>SEC “can’t very well say no” to proposed futures-based bitcoin ETFs that are expected to be ruled on in late-October, CEO Jan van Eck said</li>
 </ul>
 
</div>



As deadlines for the SEC to approve or deny VanEck’s proposed bitcoin ETFs come in the next couple months, the fund group’s CEO said he is hopeful the agency will greenlight both of them.



VanEck filed for its bitcoin trust, which would invest directly in bitcoin, on Dec. 30 of last year. A dozen or so other similar products sit alongside it in registration.



The New York-based firm more recently <a href="https://cms.blockworks.co/vaneck-files-for-bitcoin-strategy-etf/" target="_blank" rel="noreferrer noopener">applied to launch</a> a bitcoin strategy ETF in August. The actively managed fund would invest in bitcoin futures contracts as well as pooled investment vehicles and exchange-traded products that provide exposure to the cryptocurrency.



“It’s very consistent for [the SEC] to approve both products, so hopefully they’ll make that leap in a matter of weeks,” CEO Jan van Eck said Thursday evening during a virtual event hosted by the Museum of American Finance.



The SEC has <a href="https://cms.blockworks.co/sec-delays-approval-of-vaneck-bitcoin-etf-again/" target="_blank" rel="noreferrer noopener">delayed making a decision</a> on the VanEck Bitcoin Trust several times this year, noting in documents that the agency needed more time to evaluate the proposal.&nbsp;&nbsp;



But van Eck said during the panel discussion that the physically backed bitcoin ETF filing reaches its last deadline — meaning the SEC cannot again postpone its decision — on Nov. 14.



Before that, the SEC is expected to rule on the bitcoin strategy ETF during the last week of October, the CEO added.&nbsp;



VanEck, along with other issuers such as <a href="https://cms.blockworks.co/invesco-proshares-plan-to-launch-bitcoin-futures-based-etfs/" target="_blank" rel="noreferrer noopener">ProShares and Invesco</a>, revealed plans to launch a futures-based bitcoin ETF after SEC Chairman Gary Gensler said during <a href="https://cms.blockworks.co/sec-chair-gensler-prioritizes-crypto-platform-crackdown/" target="_blank" rel="noreferrer noopener">a virtual forum in early August</a> that the SEC would “look forward” to reviewing ETF applications limited to investing in bitcoin futures contracts on the Chicago Mercantile Exchange, or CME. The CME is regulated by the US Commodity Futures Trading Commission (CFTC).



<blockquote class="wp-block-quote">“[Gensler]’s much more comfortable with dealing with regulated exchanges and entities that the SEC can interact with or other federal regulators can interact with, so that’s why he said positive things about the bitcoin futures,” van Eck explained.</blockquote>



Former CFTC Chairman Christopher Giancarlo, one of van Eck’s co-panelists at the event, noted that the CFTC several years ago received pressure from regulators in the US and abroad not to approve bitcoin futures. The commission <a href="https://www.cftc.gov/PressRoom/PressReleases/7654-17" target="_blank" rel="noreferrer noopener">announced</a> in December 2017 that it would allow bitcoin futures trading on three exchanges: CME, the Cboe Futures Exchange and the Cantor Exchange.



Giancarlo served at the CFTC from June 2014 to 2019, joining after Gensler’s tenure as chairman from 2009 to January 2014.



“I take some pride in the fact that the chairman of the SEC and former chairman of the CFTC looks to that market for the basis for an ETF,” Giancarlo said. “Sometimes when regulators are willing to [have] some courage and move forward, it actually produces something, and the United States has a long history of that.”



While some have said they don’t expect the SEC to approve a physically backed bitcoin ETF until at least 2023, industry professionals are more optimistic about the proposed futures-based offerings.&nbsp;&nbsp;



“The horse has left the barn on that,” van Eck said. “There are plenty of mutual funds and funds generally that already own bitcoin futures, so you can’t very well say no, because [Gensler] would be disrupting a lot of mutual funds that are already in operation.”

VanEck CEO Hopes SEC Will ‘Make that Leap’ in Approving its Bitcoin ETFs

<div id="highlights-block_615366b13b4ce" class="highlights">
 <ul>
 <li>Genesis has introduced a trade that will allow investors to lock in exposure to bitcoin futures end-of-day closing price </li>
 <li>Basis trade at index close has long been used in traditional equities markets, but this is the first time that it has been applied to crypto </li>
 </ul>
 
</div>



Genesis Global Capital and Akuna Capital have completed the first ever trade that will allow investors to lock in exposure to bitcoin reference rate (BRR).&nbsp;



The companies have completed the first over-the-counter (OTC) block trade of a basis trade at index close (BTIC) transaction on Chicago Mercantile Exchange bitcoin futures contracts.&nbsp;



BTIC has long been used in traditional equities markets, but this is the first time that it has been made available for cryptocurrencies. It’s a move that will allow institutional investors to buy or sell as a basis to the reference rate, which, for bitcoin, is the US dollar price of one bitcoin as of 4pm London time.&nbsp;



<a href="https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html#" target="_blank" rel="noreferrer noopener">BRR</a> aggregates the trade flow of major bitcoin spot exchanges from 3pm to 4pm London time daily. It is intended to serve as a tradable reference rate that marks a type of “end-of-day price” for bitcoin, although the digital asset really trades on a 24/7 cycle. 



“It’s very important for people who are referenced to that benchmark, which is a lot of people, it’s people who traded futures; it&#8217;s people who have ETFs that closed at 4pm London; it’s funds that have to mark their NAV at 4pm London,” said Joshua Lim, head of derivative trading at Genesis.&nbsp; “Over time, more and more people started using it as a reference point, and so it&#8217;s important to have a way to trade that.”&nbsp;



While CME has offered bitcoin futures contracts since 2017 and cash-settled micro futures contracts since March 2021, this new trade offers greater exposure to existing products. Genesis is the liquidity provider for CME’s full suite of bitcoin and ether futures products.&nbsp;



“This is the first time we’re offering BTIC for our cryptocurrency futures and we’re pleased Genesis is able to support and provide liquidity for BTIC on day one,” said Tim McCourt, CME’s global head of equity index and alternative investment products, in a statement. “This is another example of how we’re providing innovative solutions to clients who want to gain exposure to CME bitcoin and ether futures.”



The news comes as <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">speculation about a potential bitcoin futures</a> exchange-traded product continues to mount. When asked about when or if the US Securities and Exchange Commission would approve such a product, Lim did not name a date, but said the increased volatility is expected. 



If approved, there will likely be a significant inflow of the assets into futures-based products, he said. This will cause a lot of distortions on the CME futures curve as people will be forced to trade that particular instrument, as opposed to now, where that instrument does not have significant demand given the high collateral requirements.



“If there&#8217;s an ETF, the AUM on those futures has to increase, the open interest on those futures has to increase, and more people will have to post dollar collateral, which will make funding those positions very expensive,” said Lim. “We&#8217;re very interested in seeing how that plays out, because that will result in the futures sort of trading at even higher premiums than they currently do, relative to spot.”

Genesis Introduces End-of-Day Pricing for New Crypto Futures Product

<div id="highlights-block_610194baf89d3" class="highlights">
 <ul>
 <li>The fund primarily invests in bitcoin futures contracts, and does not invest directly in bitcoin</li>
 <li>ProFunds’ mutual fund does not have same appeal as a bitcoin futures ETF would, says CFRA research head</li>
 </ul>
 
</div>



As bitcoin ETFs remain stuck in registration with the SEC, ProFunds has launched a mutual fund intended to offer investors a convenient way to incorporate the cryptocurrency into their portfolio.



The Bitcoin Strategy ProFund is the first publicly available US mutual fund or ETF designed to provide investment results that generally correspond to the performance of bitcoin, before fees and expenses.



“Compared to directly buying bitcoin, which may involve opening a new account with an unregulated party, this ProFund offers investors the opportunity to gain exposure to bitcoin through a form and investment method that tens of millions of investors are familiar with,” ProFunds CEO Michael Sapir said in a statement.



The fund primarily invests in bitcoin futures contracts, and does not invest directly in bitcoin.



Together with ProShares, which launched the first US leveraged and inverse exchange traded funds in 2006, ProFunds and its affiliates manage about $60 billion in assets.



A spokesperson for the company did not immediately respond to Blockworks’ request for further comment.



“I think we will likely see some demand for this product as the SEC is less likely to approve an ETF,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.



ETF issuers <a href="https://cms.blockworks.co/global-x-adds-to-stack-of-bitcoin-etfs-proposed-to-sec/" target="_blank" rel="noreferrer noopener">Global X</a> and <a href="https://cms.blockworks.co/ark-files-for-bitcoin-etf/" target="_blank" rel="noreferrer noopener">Ark Invest</a> have most recently added to the more than a dozen bitcoin ETFs awaiting approval from the SEC, which has postponed its decision on products from <a href="https://cms.blockworks.co/sec-delays-approval-of-vaneck-bitcoin-etf-again/" target="_blank" rel="noreferrer noopener">VanEck</a>, <a href="https://cms.blockworks.co/sec-postpones-decision-on-valkyrie-bitcoin-etf-to-august/" target="_blank" rel="noreferrer noopener">Valkyrie Digital Assets</a> and others.



Several industry watchers have said they believe the SEC won’t greenlight a bitcoin ETF until next year, and Wilshire Phoenix Co-Founder William Cai <a href="https://markets.businessinsider.com/news/currencies/bitcoin-etf-approval-sec-2023-btc-crypto-wilshire-phoenix-2021-7" target="_blank" rel="noreferrer noopener">told Business Insider</a> one might not be approved until 2023.



<h3>ETF waiting game</h3>



Amid the wait, fund groups have filed for products that would provide exposure to digital assets in other ways. ProShares, for example, <a href="https://cms.blockworks.co/proshares-opts-for-crypto-lite-etf-while-sec-mulls-pure-bitcoin-product/" target="_blank" rel="noreferrer noopener">applied with the SEC last month</a> to launch an ETF that would track an index comprising global companies focused on building distributed ledger technology products or services, as well as businesses that enable digital currencies.



Most recently, <a href="https://cms.blockworks.co/goldman-files-for-defi-and-blockchain-equity-etf/" target="_blank" rel="noreferrer noopener">Goldman Sachs filed for an ETF</a> that will track a Solactive index comprised of companies aligned with the “implementation of blockchain technology and the digitalization of finance.”



Rosenbluth noted that the SEC in May said it would consider whether the bitcoin futures market could accommodate ETFs, which, unlike mutual funds, cannot prevent additional investor assets from coming into the ETF. The agency set the ground rules for how mutual funds need to disclose the risks, he added.



“I expect other firms to follow suit particularly if they have a mutual fund presence,” Rosenbluth told Blockworks. “However, the mutual fund will not have the same appeal as an ETF would as younger investors are more comfortable with the liquidity ETFs provide.”



Want more investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Join us</a> September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Buy it now</a>.

ProFunds Launches Bitcoin Futures Strategy

<div id="highlights-block_60f1caa63e4c9" class="highlights">
 
</div>


<div id="highlights-block_60f1caa93e4ca" class="highlights">
 <ul>
 <li>Report comes a week after bank set out plans to begin research coverage of cryptocurrencies and digital assets</li>
 <li>Bank of America will allow bitcoin futures through CME Group, which are cash-settled contracts based on the CME CF Bitcoin Reference Rate</li>
 </ul>
 
</div>



Bank of America is reportedly set to allow certain clients to trade bitcoin futures, a move that would represent another step into the crypto realm for the financial services stalwart.



The Charlotte, North Carolina-based bank will be using bitcoin futures through CME Group, Coindesk reported Friday. CME’s Bitcoin futures contract is a USD cash-settled contract 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.



The futures that Bank of America is clearing don’t actually involve transacting in bitcoin.&nbsp;



A spokesperson for the bank declined to comment.&nbsp;



David Tawil, president of ProChain Capital, told Blockworks that the move shows that Bank of America is trying to keep pace with Goldman Sachs, which last month named Galaxy Digital the liquidity provider <a href="https://cms.blockworks.co/goldman-sachs-teams-with-galaxy-to-meet-institutional-digital-asset-demand/">for its bitcoin futures block trades</a> through CME Group.&nbsp;



The month prior, Goldman had <a href="https://cms.blockworks.co/goldman-sachs-doubles-down-on-crypto-with-derivatives-trading-team/">announced a digital assets strategy</a> that involves offering bitcoin derivatives to clients and opening a dedicated trading desk for cryptocurrency.&nbsp;



The news comes about a week after Bank of America planned to begin research coverage of cryptocurrencies and digital assets, according to an internal memo obtained by Blockworks. Candace Browning, the firm’s global head of research, called the space “one of the fastest-growing emerging technology ecosystems” in the note to colleagues.&nbsp;



Tawil said he doesn’t expect Bank of America to be a leader among its peers, adding that from the bank’s perspective, there is too much to lose and not yet enough to gain in the space.



“I expect that traditional Wall Street will try to get creative on how to benefit from crypto without diving in head-first,” he said. “It’s more likely that they will be forced [rather] than take the initiative.” Sean Horgan, an equity research analyst at Rosenblatt Securities, <a href="https://cms.blockworks.co/mizuho-securities-digital-wallets-poised-to-disrupt-traditional-banks-over-next-decade/">recently told Blockworks</a> that he believes digital wallets as a group are going to disrupt traditional banks over the next five to 10 years. Such competitors to the incumbent institutions include Square, which Mizuho Securities Senior Analyst Dan Dolev wrote in a July 15 research note could become “the money center bank of the future.”