Sunday, December 5

Bitcoin ETF losses drag cryptocurrency from its highs

Wall Street’s first exchange-traded bitcoin fund -ETF- chains several sessions in the red just a week after its debut.

After soaring in its premiere on the New York Stock Exchange, touching record figures, Proshares Bitcoin Strategy fits an 8 percent pullback that has ended up dragging bitcoin down.

The world’s most traded cryptocurrency reached its all-time highs at $ 67,000 after the ETF went public.

But now, the price of bitcoin has fallen below $ 59,000 after plummeting 5 percent in the last day.

1 billion in transactions

The premiere of the Proshares ETF, one of Wall Street’s benchmark firms for this type of investment vehicle, moved close to $ 1 billion in transactions on its first day on the stock market.

Michael Sapir, CEO of Proshares, defined the ETF’s IPO as an “important milestone”, which was made possible after the Securities and Exchange Commission (SEC) gave its authorization a couple of weeks ago after the uproar generated around regulation of crypto assets.

At its premiere, Proshares Bitcoin Strategy added 4 percent and the price of its securities reached $ 41.89 compared to the initial 40.

The ETF chained a second rise of 3 percent that took its price to highs at $ 43.28.

Strong correction after its record premiere

But after the initial appeal, investors have started to undo positions. After the rallies, the fund suffered an 8 percent plunge between Thursday and Friday.

So far this week it has alternated with a rise of 2 percent, on Monday, to correct a 1.7 percent this Tuesday. Its price now stands at $ 40.06, while the market already anticipates a 3 percent drop – which would bring its price to $ 38 – for this Wednesday.

Meanwhile, bitcoin has lost the ground it has gained in the last fortnight, in which the rally in cryptocurrencies allowed it to reach its highest all-time high.

Futures dynamics worsen returns

The key lies in the trading format of the Proshares ETF. It is based on the exchange of futures, as happens in markets such as oil, and therefore is listed on the largest futures market in the United States, the Chicago Stock Exchange (CME).

“It’s actually a bad deal for investors, especially in the long term,” explains Kelly Chia, an analyst at Julius Baer.

“Futures-based securities have a common phenomenon known as contango, which eats away the returns on real assets. This type of futures-based approach further worsens performance, with high volatility and price fluctuations, of which bitcoin has a history, ”he details.

That volatility is seen in the trajectory of bitcoin, but especially in the last year. In 2021 he reached his all-time highs twice; first in April, above $ 63,000, and after the ETF’s IPO.

However, it also alternated with crashes that left millionaire losses for investors. Its price fell below $ 30,000, close to half its current price, last July, reflecting the volatility of crypto assets.