NYSE Asks SEC to List Five Bitcoin ETFs Which Are ‘High-Risk High-Reward’
The New York Stock Exchange (NYSE) has sought the permission of the Securities and Exchange Commission in order to list five Bitcoin-related Exchange Traded Funds (ETFs) in the market. According to the SEC filing, these five Bitcoin ETFs will be offering ‘bull and bear’ futures contracts to be listed on the NYSE Arca Stock Exchange.
This is not for the first time where NYSE has filed for Bitcoin-related ETFs. Soon after the launch of CME’s Bitcoin Futures Contracts, NYSE had sought permission from SEC to launch its first Bitcoin ETF, which is still awaiting approval.
These new ETFs created by Direction Asset Management will be directly linked to the price of Bitcoin futures listed on CBOE and CME. “The target benchmark’s value will be calculated as the last sale price published by the CME or the CBOE or any other US exchange that subsequently trades bitcoin futures contracts on or before 11 a.m. E.T”
The filing notes that the ETF instruments are named as 1.25X Bull Fund, 1.5X Bull Fund, and 2X Bull Fund, that will leverage "investment results (before fees and expenses) that correlate positively to either 125%, 150%, or 200% the daily return of the target benchmark.”
This means that depending on the type of Bull Fund one chooses, for every one percent rise in the price of Bitcoin futures, the per-share gain will be between 1.25% to 2%. However, note that this per-share fluctuation holds equally true in the inverse momentum in the price of Bitcoin futures. Which means that for every 1 percent fall in the price of Bitcoin futures, “its value on a given day (before fees and expenses) should lose approximately 1.25 times, 1.5 times or 2 times, as applicable, as much on a percentage basis as the level of the target benchmark when the benchmark declines.”
The filing clearly states that these funds are not intended for long-term investments. Moreover, just like the Bull Funds, there are ‘Bear Funds’ too which allows investors to bet on the decline in the value of Bitcoin Futures price. The two funds are 1X and 2X which offers 100% and 200% gains if your contract meets the target on a given day of trading.
The fund states “If the 2X Bear Fund is successful in meeting its investment objective, its value on a given day should gain approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark declines. Conversely, its value on a given day should lose approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark rises.”
On one hand, where NYSE is planning to increase its scope with bitcoin-related instruments, there are few other financial institutions which are trying to move away. Recently, we saw that Merrill Lynch - the brokerage arm of Bank of America has completely banned its clients and advisers from trading in Bitcoin-related investments.
As cryptocurrencies have already started penetrating the mainstream financial markets, 2018 will bring more clarity about how things can shape further.