First US Bitcoin ETF is Reaching its Limit After Becoming the Fastest Fund to Amass $1 Billion in Assets

The ProShares Bitcoin exchange-traded fund has become the fastest ETF to reach $1 billion in assets.

The first Bitcoin Futures ETF started off solid by amassing more than $1.1 billion of inflows in just the first two days and reaching over $3 billion in volume in the first week of launch.

The demand for the Bitcoin ETF outpaced the performance of GLD, the dominant gold-tracking ETF, which took three days to reach the milestone in 2004.

Nice look at just how ridic $BITO's first two days of volume were. Here it is vs the next most successful ETF launches of all time. It did double any of them, and is in good co w/ second day growth (see $QQQ, $GLD) via @tpsarofagis pic.twitter.com/WLzQt7yD3t

— Eric Balchunas (@EricBalchunas) October 21, 2021

Mike McGlone, a commodities analyst at Bloomberg, calls the approval of futures-based ETF “a baby-step” toward getting the real deal, which is a spot Bitcoin ETF. US Securities and Exchange Commission (SEC) chair Gary Gensler approved the CME Bitcoin futures-backed ETF because they offer more investor protection.

“By saying they are focused on protecting investors, the SEC may have been doing the opposite,” said McGlone. According to him, the regulatory foot-dragging could have prospective investors miss out on sizable returns.

Bitcoin hit a new all-time high earlier this week at $67,000. Since then, BTC/USD has slipped and is now trading around $63k.

“Crypto is finding its footing as an investment vehicle, and the rollout of ETFs could be a big step in that direction,” said Lindsey Bell, the chief investment strategist at Ally Invest.

But this explosive start could be limited by regulated futures exchange CME.

.@CMEGroup doubled max position per contract from 2k to 4k BTC ($2.5bn). ProShares $BITO ETF close to limit with ~1900 Oct contracts. Would clearing house be comfortable beyond 4k? Doubtful. What happens when $BITO surpasses 4k as it surely will?

Note: $GBTC discount at 15%

— Max Boonen (@maxboonen) October 21, 2021

The Proshares Bitcoin Strategy ETF (BITO) is on track to breach the limit on the number of contracts it is permitted to hold by the Chicago Mercantile Exchange.

After two days of trading, BITO owns almost 1,900 contracts for this month, ready to surpass the 2,000 limit as per CME rules that cap the number of front-month contracts one entity can own.

To avoid hitting this limit, the ETF has already gained 1,400 November contracts, but at the rate it is going, the limit might still be hit sooner rather than later.

If $BITO keeps up this pace of inflows it wont have any futures left to buy by the end of the month due to pos limits (via rough back of envelope calc w/ @JSeyff ). https://t.co/KauFuaPzhb

— Eric Balchunas (@EricBalchunas) October 21, 2021

One solution to this is CME raising the limit. Additionally, the launch of competing products such as Valkyrie Bitcoin Strategy ETF, which is to start trading today, and VanEck ETF next Monday, may help here by diluting the demand for BITO.

Another solution is Gensler approving using Canadian Bitcoin ETFs in Future exchange-traded funds. The issue with BITO could also set the patch for getting the Bitcoin spot ETF.

Interestingly, in anticipation of this, the leading digital asset manager Grayscale filed to convert its Grayscale Bitcoin Trust (GBTC) into an ETF this week.

$GBTC outperforming $BITO by 4.68% so far https://t.co/0XgcNA9z0D

— Barry Silbert (@BarrySilbert) October 22, 2021

This week, Grayscale’s parent company Digital Currency Group (DCG), also obtained authorization to up its purchase of GBTC shares to $1 billion, from $750 million. As of Oct. 19, the firm has bought $388 million worth of GBTC shares.

DCG “plans to use cash on hand to fund the purchases and will make the purchases on the open market, at management’s discretion,” said the company in a statement.

This is the company’s attempt to narrow the discount between GBTC shares, currently at a steep 19%, and their net asset value (NAV).