Strategists at investment banking company JPMorgan Chase & Co have warned pent-up demand for Bitcoin exchange-traded funds (ETFs) is a threat to the futures market and could lead to the distortion of the market. The strategists noted that the pent-up demand could increase the ETF investor’s costs. The reaction for JPMorgan came just days after the launch of the ProShares Bitcoin Strategy ETF.
JPMorgan: Bitcoin Futures ETFs may come at a cost
Ahead of the historic launch of the first-ever Bitcoin-linked ETF in the US- ProShares Bitcoin Strategy ETF, Wall Street cautioned that a successful launch would result in increased cost. Now, the ETF has launched under the ticker “BITO,” and experts are already warning of possible distortion of the futures market.
The ProShares Bitcoin Strategy ETF has managed to become one of the most successful launches in history. In about 48 hours, the ETF pulled in over $1.5 billion.
Here is the issue- the cost that covers the continuous rolling over of carry, the contracts held by the exchange-traded fund. Already, BITO accounts for a quarter of open interest in October and November Bitcoin contracts, according to JPMorgan strategists Bram Kaplan and Marko Kolanovic.
Kaplan and Marko shed more light on their concerns, revealing:
This futures carry drag could become even larger if these products gather substantial assets. They will be bidding up both the futures curve further relative to spot prices and the rolls between contracts, driving a larger carry cost.
The experts further that the average annual cost of roll down between the second and the first Bitcoin futures was about 9 percent. In addition, the average annual cost between the fourth and the second futures was about 8 percent. The pair noted that:
The more investors position long, the more expensive it becomes to hold due to the ETP’s own market impact.
More ETFs to launch in the US
With the issues that came with the launch of ProShares Bitcoin Strategy ETF, we should expect more arising concerns as more ETFs continue to come. Another Bitcoin-linked ETF in the US will begin trading on the 22nd of October. The Valkyrie Bitcoin Strategy Fund will commence trading with the ticker “BTFD.”
After a successful launch, Valkyrie Bitcoin Strategy Fund will become the second of its kind to launch in the US.
Finally, we are seeing the much-anticipated launches of Bitcoin ETFs in the US. A lot of applications have been submitted with the Securities and Exchange Commission (SEC). Additionally, the SEC has approved a third Bitcoin futures ETF, VanEck. VanEck will launch its offering beginning from the 25th of October, the third of its kind in the US.
Following the ETF launch earlier this week, Bitcoin recorded a new all-time high of over $66k.
Bio: Ibukun Ogundare is a crypto writer and researcher who uses non-complex words to educate her audience. Ibukun is excited about writing and always looks forward to bringing more information to the world.