New bear-market bitcoin ETF products emerge as ‘crypto winter’ crisis deepens
Nick Evans writes that leading cryptocurrency exchange-traded product issuers in the US and Europe have unveiled novel ETF instruments enabling investors to navigate the bear market in crypto assets, as the ‘crypto winter’ crisis continues to intensify with the collapse of a large hedge fund and escalating signs of stress within the digital assets ecosystem.
In the US, ProShares – the USD50 billion ETF provider which, in October last year, launched the first US bitcoin-linked ETF with an offering that raised over USD1 billion of assets in its first two days, making it the most successful launch in the history of the ETF industry – has now notched up a double as the issuer of the first short bitcoin-linked ETF in the US market.
In Europe, meanwhile, Swiss-based 21Shares – the world’s largest issuer of cryptocurrency ETPs – has rolled out the first in a planned series of products designed for the bear market in cryptocurrencies, as part of what the firm calls its “Crypto Winter Suite”.
The new bear market-focused ETP launches come as the crypto crash continues to deepen, with Singapore-based crypto hedge fund Three Arrows Capital – which at its height reportedly managed USD18 billion of assets – falling into administration after apparently defaulting on a USD660 million loan from crypto broker Voyager Digital.
Shares in Coinbase, the largest crypto exchange in the US which went public in April 2001 with an IPO that valued the exchange at almost USD100 billion, have plunged further after Goldman Sachs issued a ‘sell’ rating on the stock – despite the shares now being down by over 80 per cent so far this year, and by almost 90 per cent from their IPO debut high.
The price of bitcoin continues to tumble, falling below USD20,000 from a high of almost USD70,000 last November (and by some 60 per cent this year alone). The total crypto asset market cap has fallen from USD3 trillion late last year to less than USD1 trillion. And the fallout from Terra’s LUNA/UST stablecoin collapse has sent shockwaves through the crypto trading community, with predictions of many more crypto hedge fund failures to come.
The ProShares Short Bitcoin Strategy ETF (BITI) aims to provide a way for investors to potentially profit from a decline in the daily price of bitcoin or hedge their cryptocurrency exposure with the convenience, cost-efficiency, and liquidity of an ETF. “BITI is designed to address the challenge of acquiring short exposure to bitcoin, which can be onerous and expensive for many investors,” the firm said in a statement.
“As recent times have shown, bitcoin can drop in value,” said ProShares CEO Michael Sapir. “BITI affords investors who believe that the price of bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings. BITI enables investors to conveniently obtain short exposure to bitcoin through buying an ETF in a traditional brokerage account.”
BITI is structured to deliver the inverse of the performance of the S&P CME Bitcoin Futures Index, seeking to achieve its objective on each investment day and for no other period, and obtaining its exposure through bitcoin futures contracts.
For investors that prefer a mutual fund, ProFunds, the mutual funds affiliate of ProShares, is also launching the Short Bitcoin Strategy ProFund (BITIX) – which will have the same investment objective as BITI.
“With the additions of BITI and BITIX, ProShares and ProFunds will be the only fund families in the US offering funds that allow investors to express their view on the direction of bitcoin – no matter whether they believe the price will go up or down,” Sapir added.
Over in Europe, cryptocurrency ETF pioneer 21Shares – which, in April this year, launched the world’s first combined bitcoin and gold ETP (called BOLD) – has kicked off the roll-out of its Crypto Winter Suite, a set of products that the firm says are “designed to help investors weather the bear market”.
The first product to be launched is the 21Shares Bitcoin Core ETP, traded on the SIX Swiss Exchange. The 21Shares Bitcoin Core ETP is designed to offer low-cost exposure to Bitcoin, as the lowest cost Bitcoin ETP on the European market. It has a total expense ratio of 21 basis points – selected to reflect the 21 million cap on bitcoin – which the firm says is 44 basis points below the next lowest product on the market.
21Shares plans to create other bear-market oriented products for investors. “The Crypto Winter Suite aims to provide investors with a variety of ways to enter the crypto ecosystem – whether that is at some of the lowest costs on the market for long-term strategic allocation, for shorter-term tactical allocation or in a more risk-controlled manner,” said the firm.
“Given the current market environment, many investors are looking to ‘buy-the-dip’ and generate the maximum potential long-term return,” said Arthur Krause, director of ETP product at 21Shares. “Our Crypto Winter Suite will provide ways for investors to dip their toes in the water at some of the lowest costs on the market.”
Added Hany Rashwan, CEO and co-founder of 21Shares: “While we're experiencing a tougher market today, interest in the long-game of cryptocurrency has not wavered. Our bear-market products provide investors with a robust toolkit for navigating the challenging market environment.”
In a first for the EU, July will see the launch of Europe’s first spot bitcoin ETF on the Euronext Amsterdam exchange with the arrival of Jacobi Asset Management’s Jacobi Bitcoin ETF – described by the firm as “the first exchange-traded equity instrument for institutional investors to access bitcoin in Europe”.
Underlining what Jacobi has termed the “tier one” institutional nature of the product, the firm has worked with a number of leading firms in the digital assets space on the launch. Custodial services will be provided by Fidelity Digital Assets, with Flow Traders and DRW facilitating trading in the new product as market-makers.
CEO Jamie Khurshid, a former Goldman banker, said: “Our goal at Jacobi is to make digital asset investments simpler and more familiar for institutional and professional investors. We have an ambitious vision and look forward to bringing an innovative product pipeline to the market very soon.”
“We are excited to be acting as lead market-maker for Europe’s first bitcoin ETF, which is another milestone in the development of the institutional digital assets space,” commented Edd Carlton, institutional digital asset trader at Flow Traders. “This is also aligned with the growing demand from institutional investors who are looking to diversify their portfolios by adding bitcoin and other digital assets.”
Meanwhile in the US, digital assets fund management leader Grayscale has responded with legal action against the SEC after the US securities regulator rejected the firm’s proposal to convert the Grayscale Bitcoin Trust – the world’s largest bitcoin fund, in which Three Arrows was a large investor – into a spot bitcoin ETF traded on the NYSE Arca exchange.
While the SEC has approved ETFs based on bitcoin futures (such as the ProShares products), the regulator has turned down more than a dozen proposals for US listings of spot bitcoin ETFs over the past year – including those from well-known firms such as Fidelity, SkyBridge and VanEck (which has now made a second application the day after Grayscale’s rejection).
In a statement detailing its legal challenge to the SEC’s decision, Grayscale CEO Michael Sonnenshein said: “Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation – and we are deeply disappointed by, and vehemently disagree with, the SEC's decision to continue to deny spot bitcoin ETFs from coming to the US market.”
Watch Grayscale's David LaValle and HANetf's Andre Voinea discuss the crypto winter with ETF Express's Beverly Chandler on Asset TV. Follow this link.