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Bitcoin ETFs close week underwater as Bitcoin slides from high

By Kevin Donovan

21:22, 22 October 2021

Bitcoin
Bitcoin - Photo: Grayscale Investment

The two Bitcoin-indexed exchange-traded funds (ETFs) to hit the market this week each traded lower Friday, as Bitcoin itself moved lower and all ended the week below their initial prices.

ProShares Bitcoin Strategy ETF closed Friday at a $39.61 share, down 3.23% on the session and 1.22% lower than the $40 it opened trading at on Tuesday. After topping 24 million trading volume Tuesday, ProShares BITO saw 11.7 million in trading volume Friday.

Valkyrie Bitcoin Strategy ETF, which began trading Friday, ended the session at $24.30, down $4.71. Valkyrie’s BTF saw 3.18 million trading volume on its first day of trading.

Funds follow Bitcoin price

The funds, which track Bitcoin futures traded over the Chicago Mercantile exchange, performed in line with broader Bitcoin prices, which were quoted at $60,921.45 (£44,000.28) as of 4 pm EDT, according to CoinDesk.

Bitcoin has lost 8.91% since hitting a new all-time high $66,879.95 price around noon on Wednesday 20 October.

While highly anticipated by cryptocurrency watchers, allowing retail investors to gain Bitcoin exposure while somewhat limiting the volatility risk of holding actual Bitcoin, others mock paying the load for an ETF and the funds indexing to futures, rather than the actual spot price of the asset.

ETFs invest in futures

Since both ETFs invest in futures rather than the actual Bitcoin assets, “at rollover the ETF would sell low to buy high,” tweeted economist and Aike Capital founder Alex Krüger. “Assets with strong cotango bleed trend lower.”

Cotango bleed refers to the relative underperformance of futures-indexed ETFs versus the reference asset due to differences in contract maturities – futures contracts being longer-dated than the reference asset’s spot price.

“It’s a horrible deal for investors in the fund itself,” Michael Casey at CoinDesk concurred. “ProShares Bitcoin Strategy ETF looks likely to incur such significant costs that investors will earn a dramatically lower return than if they’d invested directly in bitcoin.”

BTC/USD

63,922.50 Price
-0.220% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

Gold

2,392.09 Price
+0.540% 1D Chg, %
Long position overnight fee -0.0192%
Short position overnight fee 0.0110%
Overnight fee time 21:00 (UTC)
Spread 0.40

US100

17,037.80 Price
-1.980% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 7.0

XRP/USD

0.52 Price
+2.770% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

Large losses 

“The loss is so large it makes any concerns the SEC had about volatile, inconsistent reference prices for spot-market Bitcoin ETFs seem trivial.”

Grayscale Investors has petitioned the US Securities and Exchange Commission to register its existing Grayscale Bitcoin Trust, currently trading on the OTCQX exchange, as Bitcoin Spot ETF over NYSE Arca. Grayscale GBTC closed Friday at $48.75, or 0.45% lower on the session on 9.14 million trading volume.

"We think futures is not the most efficient way to gain (cryptocurrency) exposure,” Grayscale vice president of Legal Craig Salm told Capital.com Thursday. Grayscale anticipates GBTC is approved to begin trading over NYSE Arca by mid-June 2022.

Read more: Bitcoin price prediction, bitcoin market forecasts

The difference between stocks and CFDs:

The main difference between CFD trading and stock trading is that you don’t own the underlying stock when you trade on an individual stock CFD.

With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional stock trading you enter a contract to exchange the legal ownership of the individual shares for money, and you own this equity.

CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional stock trading, you buy the shares for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks.

CFDs attract overnight costs to hold the trades, (unless you use 1-1 leverage) which makes them more suited to short-term trading opportunities. Stocks are more normally bought and held for longer. You might also pay a stockbroker commission or fees when buying and selling stocks.

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