• The $20 trillion middle market is expected to drive the crypto ETF niche

  • Lydon believes that the bitcoin futures ETFs offered by ProShares and Valkyrie Funds could be the key to unleashing trillions of dollars in investor demand.

    With the recent approval of bitcoin futures ETFs, total inflows into ETFs reached $1.24 billion. As of October 26, 2021, digital investment products had received $1.47 billion in digital asset inflows, with Bitcoin receiving the majority of the inflows, followed by altcoins from Solana, Cardano, and Binance. According to the survey, the percentage of advisors who included cryptocurrency in their clients’ investment portfolios increased from 6.3 percent to 9.4 percent.

    Because of trends such as inflation, there is a middle-market where financial advisors manage approximately $20T where there is no optimal investment in non-crypto asset classes, and this is where the futures ETF may come up trumps. In a recent survey, up to a quarter of advisors saw bitcoin as a hedge against inflation, a 16 percent increase from the previous year.

    According to Simeon Hayman of ProShares, the abundance of regulation in the futures market, combined with the ease and structure of an ETF, will drive investment by people looking to get into bitcoin.

    Futures ETF vs. Crypto Spot ETF

    The Chicago Mercantile Exchange (CME) and the Commodity Futures Trading Commission (CFTC) work together to prevent futures market manipulation. In a commodities market, the futures market, not the spot market, ultimately determines the price. Futures appear to have much more liquidity, and the CME market trades at roughly 40% more volume than the largest U.S. spot market exchange.

    The Valkyrie Bitcoin Strategy ETF is an actively managed fund that invests in front-month bitcoin futures, treasuries, corporate bonds, and cash. Valkyrie Funds’ chief investment officer, Steven McClurg, believes a spot bitcoin ETF will not be available until the middle of 2022. Van Eck’s proposal for a physical bitcoin ETF must be denied or approved by the SEC by November 14, but they have filed for a bitcoin futures ETF in the meantime.

    Regulators are wary of riskier bitcoin ETFs.

    Valkyrie filed an application with the SEC on October 26, 2021, to launch the Valkyrie XBTO Leveraged BTC Futures ETF, which claims to deliver 1.25 times bitcoin’s daily returns by holding derivatives such as futures and options. Another asset manager, Direxion, filed on the same day to launch the Direxion Bitcoin Strategy Bear ETF, which aims to provide short exposure to Bitcoin futures contracts, implying that investors would profit if bitcoin prices fell and lose money if bitcoin prices rose. The SEC has requested that Valkyrie withdraw its proposal for a leveraged bitcoin ETF, as the SEC prefers to limit new Bitcoin futures products to unleveraged funds. Leverage funds are intended for investors seeking to profit from volatility rather than long-term buy-and-hold investments, and they are riskier products from which the SEC wishes to protect buyers seeking long-term value.

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