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Will Bitcoin Futures ETFs Crumble After Spot ETF Approval? Interview With ProShares

In November, as Bitcoin (BTC) surpassed $38,000, the ProShares Bitcoin Strategy ETF (BITO) achieved a new peak in assets under management (AUM). The fund’s Bitcoin futures contracts marked a historic high, reaching a value of $1.47 billion on Tuesday. This represents a notable increase from $1.1 billion at the beginning of the month and $544 million at the outset of the year.

Simeon Hyman, Global Investment Strategist at ProShares, highlighted the robust inflows into the fund, stating, “The flows have been really strong. It hasn’t all been [BTC] appreciation; there have been very strong inflows.”

As of November 30, BITO has attracted net flows totaling $470.9 million year-to-date. With an average daily trading volume of $160 million, it ranks among the top 5% of all U.S. ETFs.

November emerged as one of the fund’s most successful months, second only to its launch in October 2021 when it became the inaugural Bitcoin ETF in the United States. The previous peak in AUM occurred on November 10 at $1.44 billion, coinciding with BTC’s record-breaking value of $69,000.

Interestingly, the impressive performance of both BTC and BITO can be attributed largely to the growing anticipation for a U.S. Bitcoin spot ETF—a potential competitor to BITO in the realm of institutional Bitcoin investment options.

By the end of last week, Bloomberg ETF analysts anticipate the concurrent approval of multiple ETFs from prominent entities such as BlackRock, Ark, Fidelity, and others in early January.

In contrast to BITO, a spot ETF would secure its shares with real BTC rather than relying on futures contracts, offering investors a more direct form of exposure to the cryptocurrency.

As per Hyman, BITO has delivered a total return of 115% for investors year-to-date. In comparison, shares of the Purpose Bitcoin CAD ETF, a Bitcoin spot ETF in Canada, have seen a 127% increase this year, while BTC itself has witnessed a rise of 133%.

How Will BITO Perform Once A Spot ETF Goes Live?

Numerous expert analysts have foreseen that the approval of a Bitcoin spot ETF could divert capital from competing BTC-adjacent entities, including futures ETFs and publicly traded mining companies.

Nevertheless, Hyman holds the belief that BITO maintains distinct advantages over spot-based funds and will harmoniously coexist with them. He explained, “The futures market is a regulated place. You have to post margin, there’s a clearing house… there’s a level of security there in the mature futures market.”

In contrast, Binance, the world’s largest Bitcoin exchange for spot trading, incurred a $4.3 billion fine last month for failing to comply with U.S. anti-money laundering rules.

Meanwhile, the largest U.S.-based Bitcoin exchange still records lower daily volume compared to the CME Bitcoin futures market, which has nearly equaled Binance in terms of total futures open interest.

Hyman noted, “There’s some academic evidence that information is translated into price faster in the Bitcoin futures market than in the spot market.” He drew a parallel to the widely held belief that credit-default swaps, a form of default insurance, convey information about changes in a company’s credit risk more swiftly than the cash bond market.

Regarding the potential market impact of a Bitcoin spot ETF, Hyman expressed the view that it may not be as “powerful” as investors recognizing the role of crypto within an investment portfolio. He stated, “If you’ve got an asset class that zigs when other asset classes zag, and it’s volatile, that means you sprinkle a little bit of it into a portfolio of traditional assets and you enhance your portfolio efficiency… I think more people will see that as a use case.”

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