Crypto ETF Tanks on FTX Fallout

November 11, 2022

The largest cryptocurrency-related exchange-traded fund was hammered as digital currency exchange FTX’s bankruptcy dragged the market down again.     

The ProShares Bitcoin Strategy ETF (BITO) fell 9.9%. The ETF is down 24% for the week after a similar decline Wednesday, when potential suitor Binance backed out of a deal to buy FTX.  

Cryptocurrencies were hit hard for the second time this week: Bitcoin fell 5.1%, ethereum dropped 3.6% and Ripple plummeted 5.8%.  

One of the world’s largest crypto exchanges, FTX Trading, collapsed this week after questions about its liquidity and financial stability caused Binance to withdraw its offer to buy the company. Crypto ETFs, and the currencies themselves, which had already declined sharply this year, fell further that day.  

Contrasting the falling prices, volumes at BITO and other crypto ETFs have shot up as investors pile into funds to “buy the dip,” according to Greg King, founder and CEO of Osprey Funds, located in Fairfield, Connecticut. 

“We've certainly fielded calls from retail investors who are wondering about whether this is a good entry point,” he said in an interview with ETF.com. “There's been a lot of people on the sidelines, waiting for some kind of capitulation event in crypto where they feel like it's a real bottom.”  

Big Inflows 

More than $7.6 million has flowed into the fund, compared with the $17 million that left the fund the week before, according to ETF.com data.  

“This seems like a pretty decent price for the long term,” King added.  

In a Twitter statement earlier today, FTX said that CEO Sam Bankman-Fried, whose net worth fell from $16 billion to $1, had resigned. John J. Ray III will assume his position, according to the statement.  

The FTX debacle highlights the need for increased regulation for cryptocurrency, experts said. 

“It's a defining moment for this asset class,” said Eliezer Ndinga, director of research at 21.co, a Switzerland-based crypto fund backed by Cathie Wood. “Especially from a risk management perspective, from a transparency perspective.”  

Bankman-Fried himself noted that he hopes his former company’s trouble would prompt regulatory action.  

“I’m really sorry, again, that we ended up here,” Bankman-Fried said in a Twitter statement on Friday. “Hopefully this can bring some amount of transparency, trust, and governance.”  

Chapter 11 bankruptcy is filed when companies aim to restructure their operations, compared with Chapter 7 bankruptcy proceedings, which ends up liquidating assets. 

Meanwhile, the largest blockchain ETF, the  Amplify Transformational Data Sharing ETF (BLOK), gained 2.2%, after hitting an all-time low earlier this week. Another winner amid the fallout was the ProShares Short Bitcoin Strategy (BITI), which bets on falling bitcoin futures. It gained 9.5% and is 22% higher so far this week. 

This week, BITI alone has pulled in $12.6 million, compared with the $6.2 million that exited the fund the week prior, according to ETF.com data.  

 

Contact Shubham Saharanat[email protected] 

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