Bitcoin's true believers scorn ETFs while welcoming validation

DESPITE the hoopla over the debut of the first Bitcoin-linked exchange-traded fund (ETF), tried-and-true crypto enthusiasts are not planning on buying shares anytime soon.

The launch of the ProShares Bitcoin Strategy ETF, trading under the ticker BITO, on Oct 19 was a milestone for the asset management industry, integrating Bitcoin further into mainstream finance. Wealth management companies that did not offer clients the ability to buy crypto now could provide a way to invest in the next best thing.

Sure, it was a big step forward for Wall Street. For many Bitcoin believers who have traded crypto for years, it was nice to see, but the whole point is to bypass Wall Street and democratise the finance industry.

"We're definitely most concerned with financial independence and being your own bank, and that's what Bitcoin allows," said Ian Gaines, a 29-year-old media director at Black Bitcoin Billionaire, an educational platform for crypto investors. "The ETF is just a paper claim to that asset."

Although BITO had the second-best ETF debut in the industry's history - drawing US$570 million - retail traders gave it a more muted response, according to Vanda Research. The fund attracted US$7.68 million in cash from individuals, who preferred to buy Apple, Alibaba Group and clean energy stocks.

Meanwhile, Bitcoin's price hit an all-time high the day after the ETF's debut in what one crypto industry executive called a "validating moment".

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While the new ETF product makes it possible to buy Bitcoin exposure through brokerage accounts like those at Fidelity and Vanguard, it tracks futures - contracts to buy or sell an asset at a specified price at a later date - instead of the spot price of Bitcoin.

"There seems to be no reason to invest in a Bitcoin ETF over Bitcoin itself," said Jake Lubin, a 19-year-old student at Ohio State University. "I feel like the ETF kind of defeats the fundamental purpose of Bitcoin - ownership."

The ETF could be seen as a product for those who were reluctant to dive head first into crypto, said Lindsey Bell, Ally Invest's chief investment strategist.

"Crypto has been exciting for a while, but some have been hesitant to buy in because of the lack of transparency," she said. "Others have been sceptical about the mechanics of buying and selling pure coins. The advent of Bitcoin futures ETFs could serve the interest of these investors without requiring the holding or exchange of actual cryptocurrencies."

For Chuck Roehrig, who has been investing in Bitcoin since 2019, that the new ETF is futures-based means he will not be buying. He would rather get exposure to crypto through the actual coins. In his retirement accounts, which do not allow cryptocurrencies, he invests in the Grayscale Bitcoin Trust (GBTC) and MicroStrategy, the tech company that holds more than 114,000 Bitcoins on its balance sheet.

"The new ETFs for futures, I look at those as just investing in paper," said Roehrig, 51, who lives in Dallas and manages a tech firm. "It's going to raise the entire visibility of Bitcoin, but it's not going to be something I invest in."

He joins the likes of Ark Investment Management's Cathie Wood who said that she did not buy the BITO fund on its first day of trading because she wants to better understand the tax ramifications of the ETF's futures exposures first.

More Bitcoin ETFs are coming down the pipeline, with Valkyrie Investments and VanEck Associates planning to roll out offerings in a matter of days.

Bitcoin stalled out after reaching a record on Oct 20, but strategists are already setting out their stalls for how high the next rally will take it - US$100,000 or only US$90,000.

The digital currency is sitting in the low US$60,000s as traders watch to see how the landscape shifts now that the first US Bitcoin futures ETF is in play. The largest cryptocurrency was up 0.6 per cent to US$63,077 as of 12.25 pm in Hong Kong on Friday (Oct 22) after peaking on Oct 20 at nearly US$67,000. The move into unprecedented territory had chartists looking for new target levels - not quite the US$168,000 or US$1 million seen by some enthusiasts, but still strongly bullish.

"Initial upside targets for Bitcoin above US$65,000 lie near US$72,500, then US$89,000, and thought to be definitely within reach on this breakout of former peaks," Fundstrat wrote in a report on Oct 20. The last number would be a 100 per cent extension of the rally up from last March's lows, it said.

Bitcoin reached its record amid anticipation of the US ETFs, as well as continued institutional investment in crypto assets, and possible buying by bigger investors known as "whales". There are plenty of people projecting a gain to US$100,000 by the end of the year, including BitMEX chief executive officer Alexander Hoptner, who suggested that level in an interview with Bloomberg Television on Friday (Oct 22).

Katie Stockton, the founder of Fairlead Strategies, said on Oct 18 - before the latest record - that a breakout to new highs provides a positive long-term trend that should see the digital currency target US$89,800, based on a measured move projection. BLOOMBERG