All eyes will be on Bitcoin after it continued to buck the trend and rose further on Tuesday to close in on its old record high at $64,900 that was hit back in April, while other cryptos either held in consolidation or fell. Bitcoin has been surging higher in recent days due, mainly, to the hype surrounding the launch of the first ever Bitcoin-linked ETF, which made its debut on Tuesday.
BITO, the ProShares ETF, became the second-most heavily traded fund on record as more than 24 million shares changed hands on the first day of trading. BITO finished almost 5% higher on its first day and will be in focus again later as the market gauges investor appetite for exposure to Bitcoin.
They key question for Bitcoin and crypto traders is what does BITO’s successful debut mean for the underlying Bitcoin prices. The way BITO is structured, there won’t be any direct investing in the popular cryptocurrency itself. Instead, the ETF is backed by Bitcoin futures contracts, those that are traded on the CME.
Therefore, BITO by itself won’t introduce any new demand for bitcoin directly. But indirectly, it will do so via the futures, as the seller must sell the underlying Bitcoin to the buyer at the set price and date. Some traders’ strategies may also require them to buy more bitcoins to hedge against the futures price, while arbitragers will be busy buying and selling to take advantage of any short-term pricing disparities.
With Bitcoin going up in the days leading up to BITO’s debut, there is a possibility that the impact of the ETF’s launch might already be priced in, and we could see some “buy-the-rumour, sell-the-fact” type of reaction in the days ahead.
That being said, the current trend for Bitcoin appears very strong and the fact that so many ETF shares exchanged hands to finish well in the black on the first day points to strong interest for Bitcoin exposure. So, sentiment towards Bitcoin should remain positive even if we may see some short-term weakness. As a result, Bitcoin could easily break the old record high, before potentially climbing towards $70K next, which is the next psychological hurdle.
However, in the event of a potential false break out above the old record high, investors would need to proceed with extra care, especially if Bitcoin then goes on to make a lower low.
Source: ThinkMarkets and TradingView.com