Cryptocurrency Corner: September 2021

ETF Report takes the pulse of the cryptocurrency space, including the performance of leading cryptocurrencies and the top related news items.

Source: CoinMetrics; data as of 7/30/2021

Cryptocurrency News

Gensler Comments Stir Crypto World
Hopes for a U.S.-listed Bitcoin ETF grew following a widely watched speech by the Securities and Exchange Commission Chair Gary Gensler on Aug. 3, but the optimism was tempered by his forceful remarks on the need for more regulation in the crypto space.

Gensler acknowledged that cryptocurrency investment vehicles already exist in the form of the $22 billion Grayscale Bitcoin Trust (GBTC), the newly launched Bitcoin Strategy ProFund (BTCFX) and others. But he also seemed to understand the strong desire for crypto ETFs, which have many advantages over existing products.

“I anticipate that there will be filings with regard to exchange-traded funds under the Investment Company Act (’40 Act),” Gensler said. “When combined with the other federal securities laws, the ’40 Act provides significant investor protections.”

He added: “Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.”

The comments suggest that Gensler may prefer bitcoin futures-based ETFs over ETFs that would directly own bitcoin. If that’s the case, we may see a flood of new filings enter the pipeline soon. Currently, out of the 17 outstanding bitcoin ETF filings, only one is for a futures-based product.

By Sumit Roy

4th Week Of Outflows For Digital Assets
Digital asset investment products saw another week of outflows totalling US$19.5m during the week ended July 30, 2021, the fourth consecutive week of outflows despite the most recent price recovery, suggesting investors were using recent strength in prices to take profits.

Since the outflows began, prompted by negative price action in mid-May, outflows have totalled US$295m, representing 1% of assets under management (AuM). During the 2018 price rout, outflows were far greater, totalling 5% of AuM but occurred over a shorter period of nine weeks rather than three months.

Bitcoin saw outflows totalling US$20m, its 4th consecutive week and has borne the brunt of the outflows over this price rout in digital assets. Regardless, inflows year-to-date remain high, at US$4.1bn.

Ethereum saw outflows totalling US$9.5m, its second consecutive week, although investors have been more forgiving, seeing outflows in only six of the last 12 weeks compared to 10 for Bitcoin.

Multi-asset investment products continued to buck the trend, with another week of inflows totalling US$7.5m.

Digital asset investment products trading volumes rose 173% compared to the previous week.

By James Butterfill, CoinShares

First Bitcoin Mutual Fund Debuts
The first U.S. Bitcoin mutual fund, the Bitcoin Strategy ProFund (BTCFX), launched on July 28 to little fanfare despite being the first of its kind.

Investors are understandably more interested in a Bitcoin ETF than a Bitcoin mutual fund given all the benefits the ETF wrapper would provide, including intraday liquidity and tax efficiency. Still, BTCFX is an interesting product in its own right, and one that successfully navigated the regulatory hurdles that have thus far prevented any U.S.-listed Bitcoin ETF from coming to market.

The mutual fund holds front-month CME Bitcoin futures contracts to gain its exposure to the cryptocurrency. Since their introduction in 2017, Bitcoin futures have closely tracked prices for Bitcoin itself, but because futures contracts have an expiration date, they must be rolled forward over time for continuous exposure.

Much like with other commodity funds, a strategy of rolling futures contracts exposes investors to potential roll costs, depending on the shape of the futures curve.

Currently, 17 Bitcoin ETFs are vying to become the first to market, most of them funds that would hold Bitcoin directly—yet the evidence suggests that a futures-based Bitcoin ETF might launch ahead of those.

By Sumit Roy