First Bitcoin Futures ETF Rises In Trading Debut

The first bitcoin-focused exchange-traded fund rose in its trading debut Tuesday after getting a warm reception from investors.

The ProShares Bitcoin Strategy ETF climbed most of the day, gaining nearly 5% to settle at US$41.94. About US$981 million of shares changed hands over the session, making it the second-most highly-traded ETF debut ever, according to Elisabeth Kashner, director of ETF research at FactSet.

The launch is being closely watched on Wall Street, where finding a way to sell securities linked to bitcoin has been a priority for many firms. Bethesda, Md.-based ProShares rang the bell at the New York Stock Exchange on Tuesday to celebrate the launch of its ETF, which goes by the ticker BITO and holds bitcoin futures contracts rather than the cryptocurrency.

“There are a multitude of investors who have brokerage accounts and are comfortable buying stocks and ETFs,” said ProShares Chief Executive Michael Sapir in an interview. “We think this will appeal to them.”

Among the fund’s first-day investors was Thomas Johnson, who is 33 years old and works in pharmaceutical sales in Orlando, Fla. Soon after the fund started trading, Mr. Johnson said he used about 15% of the assets in his retirement account to buy shares of the fund.

“I see cryptocurrencies as a whole as something that will outperform the stock market,” said Mr. Johnson.

He added that it was his first ever purchase of an ETF, although he started buying bitcoin a year earlier.

Other asset managers are expected to launch similar funds, including Valkyrie Investments, VanEck and others. But one of the biggest global asset-management firms, Invesco, on Monday put its bitcoin futures ETF on hold.

“We have determined not to pursue the launch of a Bitcoin futures ETF in the immediate near term,” an Invesco spokeswoman said in a statement. The firm said it is committed to working with its partner, Galaxy Digital Holdings, on an ETF that holds crypto rather than futures.

Invesco didn’t elaborate on the decision.

The firm amended its filing late Monday, pushing the fund’s effective date toward the end of the month rather than withdrawing it altogether, signalling the ETF might still launch later on.

Thomas Lee, a managing partner at research firm Fundstrat Advisors, said the ProShares ETF will enable more individuals to invest in bitcoin. He said assets in the fund could rise to as much as $50 billion from the $20 million the fund started with on Tuesday.

“This will drive higher asset prices via network effects,” Mr. Lee said. He said bitcoin could rise to $168,000 from a recent $64,000.

Bitcoin has climbed 48% since September, reflecting in part purchases driven by the prospective launch of the ProShares ETF and rivals.

The ETF came online following an eight-year effort by asset managers to create funds that hold actual bitcoins. The Securities and Exchange Commission, which hasn’t supported that approach because of concerns that bitcoin trading isn’t transparent enough to protect investors from fraud and manipulation, instead steered asset managers toward the creation of a bitcoin futures product.

Unlike digital currencies, futures trade on regulated venues such as the Chicago Mercantile Exchange.

Futures-based ETFs are sometimes hampered by discrepancies between the futures market and the underlying assets they track.

Asset managers say that is a trade-off some investors are likely willing to make to get exposure to crypto through the more-regulated futures market.

“That’s what I’m counting on. Other investors will see value in the ETF, or at least more of a safety net and be more willing to invest” in crypto, added Mr. Johnson.

Even with the promise of regulatory oversight, SEC Chairman Gary Gensler warned investors Tuesday that bitcoin futures remain just as risky as the cryptocurrency itself.

“It’s still a highly speculative asset class and listeners should understand that underneath this, it still has that same aspect of volatility and speculation,” Mr. Gensler said in a CNBC interview.

China’s economic recovery isn’t gaining the momentum money managers are awaiting.

Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.

Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.

And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.

Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.

Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.

Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.

She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.

“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.

“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”

Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.

The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.

First Bitcoin Futures ETF Rises In Trading Debut

ProShares Bitcoin Strategy ETF advances nearly 5% following its closely watched launch.