Bitcoin rebounded from its $30k USD range back in July 2021 to an all-time high (ATH) of US$66.9k three weeks ago. Since yesterday, it seems to be making another run in an attempt to break its ATH levels.
We’ve seen Bitcoin made short bull runs like this previously, but this season’s rally appears to be a little more justified than previous ones as it is clearly fuelled by more than just social media sentiment (or Elon Musk’s tweets lol).
So, should you buy bitcoin now? Or is it better and safer to invest through the latest Bitcoin ETF instead?
What is the Proshares Bitcoin Strategy ETF (NYSE: BITO)?
You should have heard of the Proshares Bitcoin Strategy ETF (NYSE: BITO) by now. Its name may sound complicated but this Bitcoin ETF is similar to any other Equity ETFs in the sense that it helps to spread out volatility according to the theme of the ETF.
With delays after delays, I honestly didn’t think that a Bitcoin ETF would be approved by the U.S. Securities and Exchange Commission (SEC) this year.
Its approval on 19 Oct 2021 was a surprise to me.
This is because talks of a Bitcoin ETF has been around even before the 2018 crash and every application for a crypto-related ETF have been rejected by the SEC up until now.
With the Proshares Bitcoin Strategy ETF (also known as BITO), the fund manager is not buying directly into Bitcoin itself but is instead investing in bitcoin futures contracts.
What are future contracts?
Bitcoin Futures Contracts = Agreements to buy or sell Bitcoin later for an agreed-upon price.
What is important to know here is that BITO is not backed by REAL bitcoin but is instead backed by the bitcoin futures, much to the dismay of crypto enthusiasts. Because of this, BITO may not accurately track the price of Bitcoin as no one really knows what might happen in the future. Depending on your risk appetite, this may or may not be a bad thing.
The mechanics of how futures work as a trading instrument can be quite complex, you should read this if you would like to know how a fund manager (in this case, Proshares) profits from such contracts.
What’s different this time round?
BITO was launched on the 19th of October. Although it is another ETF, its approval signals two key evolution about the role of Bitcoin (and cryptocurrencies):
- Accessibility (in terms of allowing more people to be exposed to bitcoin) and
- Regulation (green light from SEC)
When it comes to accessibility, BITO gives investors the opportunity to be exposed to bitcoin without going through the hassle of completing the KYC process (i.e. taking a photo of yourself with your IC/name/date) for verification prior to creating a crypto trading account.
With BITO, even your average uncles and aunties with an ancient trading account can now be part of the bitcoin rally. This is huge for the crypto industry as a whole as it allows for a completely new influx of capital into an industry that was previously inaccessible.
In terms of regulation, SEC’s approval of BITO is certainly a large step in terms of putting in place overall regulations for the crypto industry. Depending on which side of the fence you are on, regulations may not always be a bad thing as explained by the SEC below:
U.S. residents are sending money to all sorts of exotic locations to invest in unregulated [cryptocurrency] instruments with absolutely zero recourse for losing every cent they’ve put at risk…regulation will begin to solve those issues and keep client assets ‘onshore.
SEC and CFTC May Approve Bitcoin and Ethereum ETFs This Fall
Is there really a future for Bitcoin?
Back in June, I wrote an article about how “Big Money coming in – Why Cryptocurrency is here to stay“. I referenced a report by Morgan Stanley about how cryptocurrency can be a viable asset to have in any diversified portfolio.
In summary, I infer from the report that cryptocurrency indeed does solve a real problem in this world. It is for this reason alone that I believe in a future for this asset class. Though various coins and tokens floating on the various networks each have their purpose (even meme coins), bitcoin itself is a little different from altcoins.
Because Bitcoin has the largest network and gains from the network effect, other coins essentially are playing a giant game of catch-up.
Why Bitcoin is Different – Jimmy Song
If you’re skeptical about Bitcoin, I don’t blame you – even Warren Buffet hates it. In fact, there are investors who are strongly against Bitcoin that they are willing to bet against it:
Bitcoin is a scam. How can I bet against it?
Previously, shorting bitcoin was something that many did not have access to. Those who had intentions to short bitcoin would most likely do so via companies whose main business revolves around it such a COIN, MARA, RIOT etc.
This BITO ETF gives investors a means to short bitcoin conveniently with a little more exposure to the underlying asset class itself.
If you’re thinking of shorting BITO to ride its momentum, I think it’s a valid thing to do. However, if you’re thinking of shorting BITO in the hopes that it would get to $0, I think this may be unlikely given the level of validation and acceptance that bitcoin has received to date.
Final Thoughts
Bitcoin is making a run lately, I talked about why this rally seems to be more justified than previous ones. And explain what the Proshares Bitcoin Strategy ETF (BITO) is and why it is one of the key reasons for this rally. Investors can use it to get exposure into Bitcoin, but do note that it is not backed by real bitcoins but relies on Bitcoin futures contracts instead.
What’s your stand on Bitcoin?
As a technical analyst, my view is that regardless of the value of bitcoin, it is more satisfying to catch its swing of highs and lows.
That said, this is not investment nor trading advice, please do your own due diligence before investing in anything.
P.S. don’t understand how Bitcoin works and why it is gaining traction? Join our free webinar and learn the fundamentals in 2 hours.
