Bitcoin (CRYPTO: BTC) recently hit a new all-time high, and investors seem more excited than ever about what digital currency could offer their wallets. And now with the launch of the ProShares Bitcoin Strategy ETF (NYSEMKT: BITO) on October 19, the hype only seems to increase.
In this segment of Backstage Pass, recorded on October 15 Just days before the ETF’s public debut, Fool contributors Toby Bordelon, Rachel Warren and Trevor Jennevine are discussing whether long-term investors should consider buying.
Toby Bordelon: Let’s do that, we have 10 minutes left. Let’s move on to our bonus question, I think we’re trying to do this. We’ll get to our bonus question very quickly. We will try to do this quickly. This is an interesting one that I saw. I haven’t checked the news and in the last few hours I don’t think this has been officially used, it looks like the SEC is on the verge of allowing the first future Bitcoin ETF to start trading maybe as early as next week. The way it’s going to be, they’re not going to stop it.
This is what it looks like there. Companies have offered a few ETFs, Invesco, ProShare, and it looks like the SEC is of the opinion that everything will be fine, that it will not do anything to stop this trade.
These are future core ETFs, the idea is that they are trying to track the price of Bitcoin, make it easy for investors to invest in Bitcoin where they get those future contracts that do because what you can’t doing it right now, you cannot have a pure play ETF backed by real bitcoin.
You can’t buy a pool of Bitcoin and securitize it into an ETF, you have to use your contracts to mimic the price. Direct futures trading is already permitted on the Chicago Mercantile Exchange and these are the contracts that you are going to use to operate these ETFs. What do we think, good idea, bad idea?
Rachel Warren: I’ll go first.
Toby Bordelon: It’s up to you Rachel.
Rachel Warren: I’m not a Bitcoin enthusiast here, I’m not currently invested in Bitcoin, it’s not something I write a lot, but I just think it was interesting. I think one of the more obvious benefits, like what you said, allows people who may not be completely up to speed with the concept of Bitcoin to trade Bitcoin. I think the concept of Bitcoin, at least when I talk to people, is still unclear to some. It’s like what I actually buy [laughs]. There are obviously a lot of great articles on Fool.com that explain all the ins and outs.
But I think there is this idea that you don’t have to go through a crypto exchange or any other platform right now, maybe you can go through regular brokerage I guess because it is. based on futures, as I understand it. I think this could be a benefit especially if you are really new to investing in cryptocurrency, I think it’s not really a new concept as Bitcoin is definitely more on the speculative side of the investment spectrum.
It can certainly be part of a balanced portfolio depending on your personal risk tolerance. I think if someone maybe even thinking about investing in Bitcoin and the traditional way of investing in it has been off-putting. Perhaps this could be something that would get more investors to look into the matter. Futures contracts, do you have some of their own drawbacks, minimal control, usually as an investor, of price fluctuations. It could be a risky business.
I think if at some point a pure gambling Bitcoin ETF ever came into the picture it would be a whole different story, I think it would actually be really interesting. But I think we are far from it.
Toby Bordelon: What about you Trevor?
Trevor Jennevine: I think risky was a good word to use there [laughs] I don’t know, I guess I see the benefit if you don’t feel comfortable holding Bitcoin or don’t know how to buy it safely, or want volatility like that at day to day I guess, but I think it makes sense. I am not going to rush to buy this ETF.
I think it makes sense if you are interested in Bitcoin I think it makes sense to buy it straight away. I think that makes things more complicated, more risky. It is certainly an interesting situation, but I think it will make it easier for people to lose money.
Toby Bordelon: It’s my fear. I think some people will burn themselves with this. There is a potential for a lot of losses here. Bitcoin aside, when you use futures to do something like that, there are higher costs for one, you have to roll those future contracts and get a lot of trading costs in there. It can be messed up, there are ways people can handle this, can start running around you they know when you need to renew your contracts.
Bitcoin itself is quite volatile, so will the price of futures contracts. We will see how it goes. Like you said Trevor, I wouldn’t buy Bitcoin, if I directly and I wouldn’t take that as my answer. At least not yet, leave these trades for a while and see how they react, but definitely an interesting development. We have to see how it goes, I think we’ll see what borrowing and the other SEC announcement, I think it could probably happen as early as next week. It’s something to watch.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.