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Monday, May 23, 2022

ProShares ETF contains … 0 bitcoin (BTC)

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ProShares today launches the very first Bitcoin Future ETF on the New York Stock Exchange. “We will remember 2021 for this important step”, declared its CEO Michael sapir.

An empty shell

Since their introduction in the 1990s, ETFs (Exchange-traded funds) have become very popular and now weigh over $ 9 trillion. Or the equivalent of the combined market capitalizations ofApple, Microsoft, Saudi Aramco, Google and Tesla.

The most popular ETF in the world is the one backed by S&P 500. It faithfully reproduces the performance of S & P500. 74 million shares of this ETF are traded every day.

In 2020, there were 7,600 different ETFs, covering just about everything. It is possible to be exposed to the performance of multinationals that extract specific metals, or to the exchange rate of the Swiss franc, or to the price of biofuels in Brazil, etc.

The advantage of the ETF is its fees 10 times lower than with traditional mutual funds. The explanation being that these are passive funds that exactly replicate the performance of a particular asset without interference from a manager paid to try to beat the market.

The liquidity of ETFs is also appreciable since it is possible to buy and sell ETF shares several times a day while an order can only be placed after the markets have closed in the case of mutual funds. shift. Which is still a shame in the event of a crash …

Some will wonder what is the point of paying a fee for a Bitcoin ETF when all it takes is to own bitcoin directly? This is mainly due to the fact that large investment funds prefer to leave the risk associated with the custody of BTC keys to others.

Now that we’ve said all that, let’s get to this ETF ProShare which is special that it will not contain any bitcoin… It will actually be backed by the performance of Futures reflecting the future price of bitcoin.

This ETF will therefore be completely “empty”, unlike, for example, a Gold ETF which is generally backed by physical gold reserves deposited in the coffers of a bank.

Why launch an ETF backed by Futures rather than real bitcoin? Because the chairman of the SEC Gary Gensler has reported in the past that this kind of ETF would have more exchange to be approved.

Chairman @GaryGensler on CNBC this morning talking about the Bitcoin Futures ETF that just started trading.

“We should be technology-neutral, but not policy-neutral. We’re trying our best to bring projects into the investor protection perimeter.”

Futures ETFs is the first step.

– Brady Swenson, GMI (@CitizenBitcoin) October 19, 2021

Chairman Gary Gensler on CNBC this morning speaking about Bitcoin Futures ETF which just started trading
“We should be technologically neutral, but not politically. We do our best to protect investors. “
The Future ETF is the first step
. “

This empty shell does not really satisfy institutional investors who want to invest in an ETF that actually contains bitcoin and not bets on its future price.

Especially since everyone knows that the big banks use the futures market to manipulate prices. JP Morgan, Barclays, UBS, Royal Bank of Scotland and the MUFG were recently convicted of manipulating the prices of gold and silver for over a decade …

The ridiculous fine of $ 1 billion has not changed much since the prices of gold and silver have hardly changed this year, while we observe increases ranging from 20 % to 270% for almost all raw materials …

More comically, the NY Times even reports that the Futures in question will be those of Chicago Mercantile Exchange (CME). That is, Futures that will never see the color of a single bitcoin! The site of CME stipulates that upon expiry, ” Futures are settled in dollars, not bitcoin “!

As a reminder, Futures are at the origin of insurance contracts. For example, a cocoa producer wishing to protect himself against price fluctuations will conclude a Future contract with an industrialist who undertakes to buy his cocoa from him in 6 months at a price fixed in advance.

Nowadays, Futures have become pure instruments of speculation. The underlying commodities are hardly ever delivered to the traders who sell and buy these Futures contracts.

The story becomes interesting when we know that banks and investment funds (like BlackRock…) Can “print” as many Futures as they want without actually owning the underlying commodities.

In the case of Gold Futures, banks sell huge amounts of gold that they don’t have, which is like artificially inflating the gold supply with paper. As the other would say: ” Futures markets are not manipulated, they are manipulation “…

These Futures are false promises. The “bullion banks” could absolutely not deliver all the gold which is currently pledged through all the Futures contracts. Futures that expire are therefore settled in dollars.

This gigantic and bogus gold offer is possible for the simple reason that speculators very rarely ask for the gold to be physically delivered. They prefer to leave it on deposit with the “bullion banks” who sold them this imaginary gold rather than having to manage gold bars. It is more practical and much cheaper.

However… the possibility of having it delivered does exist! Obviously, and as we have just explained, a whole part of them would receive gold if everyone applied for it at the same time. But this possibility has at least the merit of existing whereas this is absolutely not the case for Futures backed by bitcoin!

This is all the more incomprehensible since bitcoin does not cost anything to store and move, unlike gold, oil, metals or any other commodity.

In fact, this is quite understandable. The creators of CME’s Bitcoin Futures knew that it would be impossible to create mountains of “paper bitcoin” due to the fact that it costs nothing to have bitcoin “physically” delivered.

They therefore quite simply launched futures backed by the wind… Let us recall the words of the CME boss Leo melamed shortly before the launch of these Futures: “ We will tame Bitcoin “…

In short, Bitcoin Futures ETFs are good news in the sense that “Bitcoin is here to stay”. On the other hand, these empty shells will create an artificial supply of BTC in the hands of the big banks which could manipulate the prices down as they already do with gold …

It will be necessary to closely follow the evolution of these Futures and compare it to that of Futures which actually deliver BTC, like those of FTX.

The good news is that we may not have to wait long before launching an ETF backed by genuine BTC reserves. CNBC reports that Grayscale may well launch such an ETF before the end of the year. Wait and see …

To go further, here is our article from November 2020: Bitcoin-Backed Futures (BTC) Market Must Close!

Jodie Gunzberg (coindesk, ex Morgan Stanley wealth management chief investment strategist) loose that one should not buy Bitcoin ETF Futures.

And she is right.

– Nicolas Teterel ∞ / 21 🔻 (@NTeterel) October 19, 2021

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