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Bitcoin reaches new record high, ETF hits the market

Buoyed by the successful launch of its first futures exchange-traded fund, Bitcoin nearly hit $67,000 per coin Wednesday, setting a new record-high price for the world’s most popular cryptocurrency.

The news: It’s been a good week for Bitcoin.

  • First, the U.S. Securities and Exchange Commission gave a formal nod to the first-ever Bitcoin futures exchange-traded fund or ETF.

  • When the ProShares Bitcoin Strategy ETF hit the New York Stock Exchange as $BITO on Oct. 19, it grew nearly 5 percent and topped more than $1 billion in trading volume on its first day. It’s one of the most successful ETF debuts ever.

  • The ETF’s triumphant debut inspired a Bitcoin rally that pushed the crypto to nearly $67,000 and a market cap of more than $1.3 trillion.

ETFs 101: An ETF is a financial asset that typically contains a variety of securities that trade on an exchange just like a stock and they are often used to hedge risk via diversity. They’re similar to a mutual fund with a mix of assets, have low fees, and are tapped by a variety of investors ranging from retirement-savers to Wall Street firms.

Futures ETF, WTF? Futures ETFs operate differently. The $BITO futures ETF tracks contracts that speculate on the future price of Bitcoin rather than the current value of the crypto itself. This allows retail and institutional investors to have exposure to Bitcoin without holding the cryptocurrency directly. Many ETFs and futures ETFs can be purchased via popular brokerages like WeBull, E*TRADE, or Robinhood.

“This will be a floodgate of new capital and new people into the space.” —Ian Balina, CEO of Token Metrics

Why it matters: Whatever your thoughts are on Bitcoin, futures, or ETFs, the $BITO fund represents meaningful progress for bringing cryptocurrencies into the more traditional financial industry. Many crypto enthusiasts would rather the SEC allow an ETF that contains actual crypto, but its regulatory approval is nevertheless a “milestone,” according to ProShares CEO Michael Sapir.

Cash and carry: Experienced crypto investors will be able to use the new ETF to employ a cash-and-carry arbitrage strategy. This time-sensitive strategy exploits the mispricing between Bitcoin’s actual price and its corresponding derivative. Profiting from this strategy entails the eventual correction in that mispricing, per Investopedia.

Risky business: The biggest risk of ETF futures is known as the contango effect. That’s a scenario in which the futures price of a commodity is higher than its spot price, or current price in the marketplace.

Regulators loom: As Bitcoin enthusiasm reaches a fever pitch, the U.S. government is exploring new regulations on cryptocurrencies. Bloomberg reported that President Biden may soon sign an executive order that would direct federal agencies to study the crypto sector and devise regulatory recommendations.

Race to regulate: Policymakers have struggled for years to devise crypto regulations, however, Bitcoin's growth in the last 3 months (about 100% growth) is creating more urgency. SEC chairman Gary Gensler — who taught a crypto class at MIT —told the Senate in September that the organization is working feverishly to create regulations for the volatile crypto market.

Number to know: $69,999. That’s Bitcoin’s new all-time high for now, according to Coinbase. At about 11 a.m. Wednesday, Bitcoin topped its previous high of $64,889 reached in April.

That’s crazy: With its latest surge, Bitcoin passed the Swiss Franc to become the 13th largest world currency by market cap.

What are your thoughts on the first Bitcoin futures ETF? Will $BTC top $70K this week? Share your thoughts below.

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