Bitcoin, the leading cryptocurrency by market capitalization, has been facing downward pressure in the past 24 hours, as it failed to sustain the momentum from the start of the month. Bitcoin reached a six-week high of $28,000 on Oct. 1, but has since dropped below $27,000, losing about 3% of its value.
Some analysts attribute the decline to the disappointing performance of the newly launched ether futures exchange-traded funds (ETFs) on the Toronto Stock Exchange (TSX). The three ETFs, which started trading on Tuesday, are the first of their kind in North America and offer investors exposure to ether futures contracts without having to hold the underlying asset.
However, the ETFs have not attracted much interest from investors, as they traded with low volumes and premiums. According to data from Bloomberg, the Purpose Ether Futures ETF (ETHH) had a volume of about 33,000 shares on its first day, while the CI Galaxy Ether Futures ETF (ETHX) and the Evolve Ether Futures ETF (ETHR) had volumes of about 6,000 and 4,000 shares, respectively. The ETFs also traded at a slight discount to their net asset value (NAV), indicating a lack of demand.
Ether futures ETFs face challenges
The lackluster performance of the ether futures ETFs may be due to several factors, such as the complexity and risk of the products, the competition from other crypto investment vehicles, and the regulatory uncertainty in the US market.
Unlike spot ETFs, which track the price of an asset directly, futures ETFs track the price of futures contracts, which are agreements to buy or sell an asset at a specified price and date in the future. Futures contracts are subject to factors such as contango and backwardation, which can cause the price of the contract to diverge from the spot price. Contango occurs when the futures price is higher than the spot price, while backwardation occurs when the futures price is lower than the spot price. These phenomena can affect the performance and returns of futures ETFs.
Moreover, futures ETFs are more costly and risky than spot ETFs, as they involve paying fees to roll over contracts and margin requirements to maintain positions. Futures ETFs also have a higher tracking error, which is the difference between the ETF price and the NAV. These factors may deter some investors from investing in futures ETFs.
Additionally, futures ETFs face competition from other crypto investment vehicles, such as spot ETFs, trusts, and funds. For instance, Canada already has several spot ETFs for bitcoin and ether, which offer direct exposure to the assets with lower fees and tracking error. These products may appeal more to investors who want a simple and efficient way to invest in crypto.
Furthermore, futures ETFs may face regulatory hurdles in the US market, which is the largest and most influential market for crypto. The US Securities and Exchange Commission (SEC) has not approved any crypto ETFs yet, citing concerns over market manipulation, custody, and investor protection. While some analysts speculate that the SEC may be more open to approving futures ETFs than spot ETFs, as they fall under its jurisdiction and oversight, others argue that futures ETFs may not satisfy the SEC’s standards and expectations.
Crypto market outlook
Despite the current slump in bitcoin price and the tepid debut of ether futures ETFs, some analysts remain optimistic about the crypto market outlook. They point to factors such as growing adoption, innovation, and institutional interest as drivers for future growth.
For instance, El Salvador recently became the first country to adopt bitcoin as legal tender, while other countries such as Ukraine and Panama are exploring similar initiatives. The crypto industry is also witnessing rapid innovation and development in areas such as decentralized finance (DeFi), non-fungible tokens (NFTs), and layer-2 solutions. Moreover, institutional investors such as hedge funds, banks, and corporations are increasingly showing interest and involvement in crypto.
Therefore, some analysts believe that the current dip in bitcoin price is a temporary correction rather than a reversal of the long-term uptrend. They expect bitcoin to resume its rally and reach new highs by the end of the year or early next year.