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Finding bright spots in the bitcoin bear market

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It’s been a tumultuous year for cryptocurrencies and their trading platforms, but there are still bright spots in the space. It’s a Bitcoin Futures ETF.

The fund posted record trading volumes in 2022 and continues to operate smoothly in regulated markets.of ProShares Bitcoin Strategy ETF (BITO) It hit a trading record on Nov. 8, surpassing its previous record by 64%.and volume ProShares Short Bitcoin Strategy ETF (BITI) And according to ProShares, November 8’s price was 366% higher than any other day since its launch.

BITO is still the largest crypto fund, and BITI offers the opposite strategy to investors betting on Bitcoin. These types of his ETF structures, coupled with futures, work well against the backdrop of cryptocurrency volatility.

“Given the times of Covid and high volatility, that’s not surprising,” said Deborah Farr, founder and managing partner of ETFGI. Bob Pisani CNBC’s “ETF edgePeople thought bond ETFs wouldn’t work, but they did. So the ETF wrapper works fine. ”

As highly regulated funds traded on the CME exchange, ETFs function as an ecosystem, Fuhr said. In most cases, investors trade ETFs as commodities rather than trading the underlying securities.

Continued pressure on physical Bitcoin ETFs has been consistently dismissed by SEC Chairman Gary Gensler, largely based on the exchange’s unregulated aspects and ongoing fraud and corruption accusations.

Simeon Hyman, global investment strategist at ProShares, said in the same segment that “the exchange system between bitcoin and cryptocurrencies is not yet mature, even without FTX.” catastrophic collapse From a $32 billion company to facing an onslaught of criminal investigations.

Hyman said the lack of isolation between bitcoin exchanges underscores the need for maturity. Meanwhile, the futures market has matured rapidly, he said.

However, the futures market does not track physical Bitcoin and ETFs, so funds may incur additional charges such as roll costs when exchanging expired futures for new ones.

“BITO is not a leveraged strategy,” said Hyman. “You have plenty of cash, so the return should be close to the bitcoin spot. So that roll cost is offset by cash returns. And that’s what we’ve seen this year. .”

Despite the benefits of this strategy, BITO is down about 65% this year. In comparison, Bitcoin 64% less by 2022, ethereum is down 65%.

However, the direction of cryptocurrencies and the ETFs that track them is at a crossroads, with the fallout from the FTX debacle weighing heavily on decentralized financial platforms and blockchain technology.

“We need to distinguish crypto products from blockchains and smart contracts,” said Fuhr. “Because we know it is used for a lot of things, like tokenizing private equity and granting retail access.”

Fuhr explained that under a project in Europe, ETF creation/redemption is being done by ETP linking using smart contracts. In Canada, where ETFs have been operating for 33 years, the funds operate under a set of rules and regulations similar to the ’40 Act Funds in the United States.

According to ETFGI, there were 162 products listed globally as of the end of October, with net inflows of $7.5 billion.

“When it comes to bitcoin and cryptocurrencies, it’s not as much of an issue as there are disclosure rules,” Hyman said. “The question is, if you invest in the bitcoin exchange itself, what stress will it put on the exchange?”

Hyman said asset commingling is a concern for investors, prompting them to look to “cold wallets” where cryptocurrency tokens are held offline.

“ETFs fix a lot of that,” he said. “Especially for belts and suspenders in the futures market.”

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