Bitcoin futures are finally here. On Sunday evening, Cboe Global Markets, parent company of ETF.com, successfully launched three bitcoin futures contracts on the Cboe Futures Exchange, ushering in a new era for the nascent cryptocurrency market.
The reaction in the bitcoin market was positive. Spot prices climbed above $17,000, a fresh record high. The new futures contracts traded even higher than that, with the front-month January contract settling at $18,545 on Monday, a 9% premium to spot prices at the Gemini exchange.
The January contract had volume of nearly 4,000 contracts as of 4 p.m. ET on Monday, while the February and March contracts traded a combined 157 contracts. Each contract represents one bitcoin.
For a brand new futures product, trading was relatively brisk. Russell Rhoads, director of product advancement and global derivatives at Cboe Global Markets, noted that when Cboe Volatility Index (VIX) futures launched in 2004, they only saw 461 contracts traded on their first day. On Friday, VIX futures traded close to 329,000 contracts.
The steep contango in bitcoin futures, where subsequent contracts are trading at increasing prices, may reflect traders’ expectations of a continued rally in the cryptocurrency. Before the launch, there were some questions about what shape the futures curve would take, but those have been put to bed for now.
Source: Cboe Global Markets
Bitcoin ETF In 6 Months?
Of course, the bitcoin questions don’t end there. The launch of bitcoin futures now raises another important question―how long will it be before we see the first bitcoin ETF?
“Nobody really knows, but if I had to guess, I’d say we’ll have a bitcoin ETF by next summer,” said Eric Balchunas, senior ETF analyst at Bloomberg. “The SEC has been talking to issuers about this for four years, so they’re slowly going to break down.”
Balchunas pointed to the hundreds of millions of dollars worth of trading that takes place in the over-the-counter Bitcoin Investment Trust (GBTC) and the Sweden-listed Bitcoin Tracker One ETN as evidence that the bitcoin futures market will soon see significant interest.
“If you can get those kinds of numbers in these far-out pockets of the market, you can imagine how liquid the futures in the U.S. will be in no time.” That will push the SEC to approve a bitcoin ETF, he says.
Filings Piling Up
Sensing an opening, issuers wasted no time in filing their bitcoin ETFs with the SEC on Monday. REX ETFs and VanEck both refiled for bitcoin futures ETFs after briefly withdrawing their original filings a few months ago at the request of the SEC.
Meanwhile, First Trust also filed for a bitcoin futures ETF on Monday, joining the race to be the first to market.
The Winklevoss Bitcoin ETF (COIN), a fund that would hold “physical bitcoin” as opposed to futures, is also still in the running. The ETF was rejected by the SEC in March, but is being reconsidered on appeal.
It’s not hard to understand why so many issuers are interested in launching a bitcoin ETF. Balchunas says the first U.S.-listed bitcoin ETF is close to guaranteed to becoming a billion-dollar product. In fact, he predicts that whichever product is first to market could pull in $1 billion in record time. That record currently belongs to the SPDR Gold Trust (GLD), which hit the milestone in three days.
“If a bitcoin ETF came out today, it would break the record,” Balchunas said. “In six months, bitcoin may not be as front and center as it is now, but even then, it has a better shot of breaking the record than anything else I can think of, including a marijuana ETF.”
According to Balchunas, there are currently five futures-based bitcoin ETFs; one “physically backed” bitcoin ETF; and five equity blockchain ETFs in the pipeline.
|Issuer||Filing Date||Replication Strategy||Status|
|Winklevoss Bitcoin Trust||07/01/2013||Will store bitcoin||Denied, but appealing|
|Bitcoin Investment Trust||03/22/2016||Will store bitcoin||Withdrew for now|
|SolidX Bitcoin Trust||07/12/2016||Will store bitcoin||Denied, out of race|
|Ether ETF||07/26/2016||Will store ether||Awaiting SEC|
|VanEck Vectors Bitcoin Strategy ETF||08/11/2017||Will use bitcoin funds/futures||Awaiting approval|
|Rex Bitcoin Strategy ETF||08/23/2017||Will use bitcoin futures||Awaiting approval|
|Rex Short Bitcoin Strategy ETF||08/23/2017||Will use bitcoin futures||Awaiting approval|
|ProShares Bitcoin ETF||09/28/2017||Will use bitcoin futures||Withdrew for now|
|ProShares Short Bitcoin ETF||09/28/2017||Will use bitcoin futures||Withdrew for now|
|Evolve Bitcoin ETF (Canada)||09/29/2017||Will use bitcoin futures||Awaiting approval|
|First Trust Bitcoin ETF||12/11/2017||Will use bitcoin futures||Awaiting approval|
|Amplify Blockchain Leaders ETF||11/01/2017||Equity basket||Awaiting approval|
|RealityShares Nasdaq Blockchain ETF||11/02/2017||Equity basket||Awaiting approval|
|InnovationShares Blockchain Innovators ETF||11/13/2017||Equity basket||Awaiting approval|
|First Trust Indxx Blockchain ETF||11/13/2017||Equity basket||Awaiting approval|
|Horizons Blockshain ETF||11/22/2017||Equity basket||Awaiting approval|
Source: Eric Balchunas of Bloomberg
Bitcoin Holy Grail
Balchunas said that the “holy grail” of bitcoin ETFs is a fund that actually holds coins, much like GLD holds physical gold. That fund could see inflows of up to $10 billion if it were available today. However, there’s a host of other ETFs that could get the nod before that, stealing money from the holy grail along the way.
“You could see a scenario like this where the blockchain ETF comes out first, because that’s just an equity product,” he said. “That could get $200 million from people who just want a piece of bitcoin.”
“Then you could get the futures-based Evolve Bitcoin ETF in Canada approved because Canada has liberal regulators. That could be followed by a futures-based ETF approval in the U.S., and then finally you get the holy grail, which is the physically backed coin-based ETF.”
“The question is, how much assets did those products steal along the way that would have otherwise gone to the holy grail?” Balchunas asked. “There’s a lot of not-quite-ideal products that will come out before what everyone ultimately wants, which is a GLD-like, coin-backed bitcoin ETF. But that looks like it could be at the end of the line for approval.”
Contact Sumit Roy at [email protected]