New York Stock Exchange Tries for Bitcoin Futures ETFs

The New York Stock Exchange has officially asked the Securities and Exchange Commission for permission to launch five new Bitcoin-related ETF funds via NYSE Arca, according to Cointelegraph.

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The ETFs will be based on Bitcoin futures. Should the NYSE receive authorisation, it will be the third major American institution to begin trading on these contracts.

What are these ETFs?

The proposed ETFs are called ‘bull funds’ and ‘bear funds’, of which there are three and two respectively. Buying into the former is a bet on a rising price, and the latter a descending one. Each fund promises different returns, or losses, ranging from 1.25X to 2X.

An ETF is an investment product which allows people to bet on the rising or descending value of a commodity. The ETF owns the asset, divides the value of the asset into shares, and it is these shares that the customer buys. Thus, the customer does not own the asset in any way, but can profit from changes in its value.

In this particular case, the product that the ETFs own will be Bitcoin futures. Specifically, they will track the Bitcoin futures market, and offer investors the chance to earn more than they would by buying Bitcoin futures directly. As the filing states:

“[The funds] should not be expected to track dollar for dollar the spot price of bitcoin because the Fund will invest in Bitcoin Futures Contracts rather than directly in bitcoin, and the spot price movements of bitcoin may not correspond directly to price movements of the Bitcoin Futures Contracts.”

It should be noted that customers of these futures contracts do not actually own Bitcoin either. They are offered by CBOE and CME Group, two major Chicago-based exchanges. These products were launched in December.

The futures contracts have very high entry costs, as the institutions need to insulate themselves from the instability of Bitcoin – for example, the margin requirement for Bitcoin futures at CBOE is 44%.

Some brokers have subsequently begun allowing their customers to trade on the contracts on their platforms, but also with very high entry costs. For example, Interactive ‎Brokers requires a margin deposit of ‎$9,000.‎

These high entry costs are one reason that a share of an ETF might be a more attractive option for a customer, as well as the fact that these contracts are not meant to be held for a long time.

Dave Weisberger, CEO of CoinRoutes, told Business Insider: “Investors will likely see these leveraged products as a way to profit on price moves without taking either the security risks of buying actual bitcoin or having approved accounts to trade futures.”

NYSE Arca is an all-electronic exchange dedicated to exchange traded funds, or ETFs. According to its website, in September 2016 it held over 92% of all exchange-traded products in the US, totalling 2.2 trillion USD.

It is not the first body to apply for authorisation to offer such ETFs – the Gemini exchange was famously rejected in March 2017, but that was in a different time. Now, emboldened by the SEC’s approval of the aforementioned Bitcoin futures, requests have been flooding in.