ProShares wants to change the way it runs its new Bitcoin futures ETF less than a week after it debuted with a bang.
ProShares CEO Michael Sapir told ULTCOIN365 that his company has applied for a trading limit exemption at the Chicago Mercantile Exchange, where it purchases futures contracts for its Bitcoin ETF, and that ProShares will seek permission to invest in other types of derivatives contracts.
On Twitter, ETF analyst Eric Balchunas confirmed the news: “Barron’s article confirms what I’ve been hearing as well, that ProShares is filing to be exempt from CME position limits AND they can use swaps if necessary.” Both would undoubtedly be extremely beneficial in terms of maintaining exposure if $BITO continues to grow.
The CME sets a limit of 2,000 Bitcoin futures contracts that expire in the same month. ProShares can only hold 4,000 contracts in November and 5,000 total. ProShares currently holds 2,133 contracts for November and 1,679 contracts for October, representing 76 percent of its maximum.
The ETF invests 25% of investors’ funds in a Cayman Islands subsidiary, which then instructs that subsidiary to purchase Bitcoin futures on the Chicago Mercantile Exchange. The ETF’s assets under management have risen to more than $1 billion since its launch on Tuesday.
ProShares is currently investing the remaining 75% in treasury securities and the repo market. To gain leverage on its investments, ProShares borrows money from the repo market. ProShares uses this leveraged cash to invest in futures contracts, which are cash-settled bets on the future price of Bitcoin.
The fund does this regardless of market conditions. If the price of Bitcoin rises, ProShares profits from those bets. It would use those profits to generate and borrow money from the money market in order to purchase Bitcoin futures contracts. If Bitcoin falls in value, ProShares will lose the cash-settled bets, and its cash and Bitcoin holdings will shrink.
According to Sapir, ProShares is considering investing the remaining 75% in assets other than treasury or repo securities. He suggested that it could invest in future-dated contracts, swaps, or structured notes.
On Tuesday, ProShares released a prospectus that went into great detail about this. The fund “may,” after consulting with the SEC’s staff, “invest in other products that correlate with the price of Bitcoin and other cryptocurrencies.”
ProShares also stated that it may invest in stocks that are related to the cryptocurrency market, such as Bitcoin miner Riot or MicroStrategy, a cloud computing firm in the United States that went crazy for Bitcoin around this time last year.