Bitcoin futures ETF mania cools as Wall Street hits pause button

ETF Hub wrote a column · Nov 6, 2021 02:32

What was expected to be a wave of U.S. exchange-traded funds tied to Bitcoin futures has all but dried up -- for now -- after off-the-charts demand for the first one rattled Wall Street's all-important middlemen.

Wall Street analysts as many as four Bitcoin futures ETFs to begin trading in October following the SEC' s tacit approval of the structure; instead only two products, fromProShares $ProShares Bitcoin Strategy ETF(BITO.US)$ and Valkyrie Investments $Valkyrie Bitcoin and Ether Strategy ETF(BTF.US)$, debuted.

The delay is due in part to reticence among futures commission merchants, which act as an intermediary between derivatives-backed funds such as the $ProShares Bitcoin Strategy ETF(BITO.US)$ and the exchanges where those contracts trade. Known as FCMs , these firms -- typically banks -- handle buy and sell orders for futures contacts on behalf of their clients and then settle those trades with exchanges such as the Chicago Mercantile Exchange.

Bitcoin futures ETF mania cools as Wall Street hits pause button

In normal circumstances, it's a fairly mechanical, out-of-the-spotlight relationship. However, the seen for $ProShares Bitcoin Strategy ETF(BITO.US)$ -- which last monthaccumulated more than $1 billion in assets in just two days, among the biggest launches ever -- has FCMs thinking twice. The cash influx quickly ate up the balance sheet of the firm acting as an FCM for BITO at its launch, putting regulatory capital limitations against the Bitcoin futures exposure in sight, according to a person familiar with the matter.