Valkyrie’s BTF Trades $10m in First 5 Minutes

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  • Valkyrie’s BTF made its Nas­daq debut Fri­day as the sec­ond futures-based ETF avail­able in the US
  • Con­tan­go and roll costs, a major con­cern for many ana­lysts, are not going to be a prob­lem, Valkyrie CIO said

Three days after the ProShares Bit­coin Strat­e­gy Fund’s his­toric debut, Valkyrie Invest­ments has brought the sec­ond fund of its kind to market. 

“If you look at our fil­ing date, our 75-day peri­od actu­al­ly doesn’t end until Sun­day, so we were able to jump in a lit­tle bit ear­li­er,” said Steven McClurg, chief invest­ment offi­cer at Valkyrie. “We were ready to go last Fri­day, we just kept get­ting a com­ment here or a com­ment there, real­ly, real­ly minor stuff.” 

Valkyrie’s Bit­coin Strat­e­gy ETF made its Nas­daq debut Fri­day at $25.37. ​​The launch comes short­ly after Valkyrie changed the name of its tick­er from BTFD, an acronym praised by many cryp­to enthu­si­asts on Twit­ter, to BTF on Wednes­day. McClurg not­ed, the US Secu­ri­ties and Exchange Com­mis­sion — per­haps una­mused by the idea of hav­ing an ETF named after a bit­coin meme — did have some­thing to do with the last-minute switch back to the orig­i­nal BTF. 

Even being sec­ond to mar­ket, BTF was able to trade $10 mil­lion in the first five min­utes of trad­ing Fri­day. The Nas­daq last sale (NLS) vol­ume topped 1 mil­lion short­ly after noon.

“If you’re num­ber one, you’re always going to get the most amount of flows, and you will have prob­a­bly solid­i­fied your place as the top ETF, so we were real­ly fight­ing to be num­ber one,” McClurg said.

Lead­ing up to BITO’s launch on Tues­day, experts warned that the futures-based struc­ture would lead to con­tan­go, a sit­u­a­tion where the futures price of bit­coin is high­er than the spot price. ETFs that track futures must fre­quent­ly trade con­tracts to main­tain expo­sure, lead­ing to roll costs for investors. For bit­coin, this roll cost has aver­aged about 10 per­cent­age points of return annually.

McGlurg said that the nature of cash-set­tled futures in the case of BTF helps to mit­i­gate roll cost concerns. 

“Roll costs will depend on the liq­uid­i­ty and the size of the mar­kets — they’re pret­ty expen­sive when it comes to com­modi­ties like oil, where you can’t take phys­i­cal deliv­ery,” McClurg said. “The futures con­tracts that we’re work­ing with are cash set­tled, not phys­i­cal­ly set­tled, so you can hedge it real­ly well. 

Investors can take basis direct­ly to bit­coin spot, and mar­ket mak­ers can trade on oth­er exchanges, which takes out a lot of the roll costs, he said. 

Should investors be worried about contango?

The amount of mon­ey locked in Chica­go Mer­can­tile Exchange futures con­tracts explod­ed fol­low­ing the launch of BITO, with more than $1.5 bil­lion flood­ing the mar­ket after the fund’s launch on Tuesday. 

BITO alone already accounts for a quar­ter of open inter­est in both Octo­ber and Novem­ber bit­coin con­tracts, and the mar­ket is about to become even more sat­u­rat­ed with Valkyrie’s launch, VanEck’s expect­ed launch and the many ETF appli­ca­tions cur­rent­ly sit­ting with the SEC. 

Accord­ing to a recent note, JPMor­gan strate­gists Bram Kaplan and Marko Kolanovic wor­ry that the car­ry costs could become even larg­er as these types of funds increase in assets. There’s a chance that roll costs could amount to more than the fund’s annu­al man­age­ment fee, which is 0.95% for both ProShares and Valkyrie’s prod­ucts, they said. 

Oth­er ana­lysts believe the oppo­site: that roll costs will shrink as the ETFs grow in popularity. 

“Strong inflows for the new ProShares Bit­coin Strat­e­gy (BITO) ETF show pent-up demand and quan­ti­ta­tive traders tar­get­ing arbi­trage oppor­tu­ni­ties, which are like­ly to nar­row spreads and pres­sure volatil­i­ty,” said Mike McGlone, senior equi­ty strate­gist. “Rolling futures into con­tan­go is the top expense for most futures-based ETFs, but we see bit­coin on track to trade like gold.”

McGlone said that the con­tan­go seen now is arti­fi­cial, and as ETFs grow in pop­u­lar­i­ty, it will be arbed out in time. In the past, it would have been dif­fi­cult for hedge funds to arbi­trage, or sell the out of mon­ey calls on futures and buy the under­ly­ing assets, but ETFs present a new opportunity. 

“Now that we have wide­ly dis­sem­i­nat­ed ETFs to do this, this arb that I think — one of the best arbs I’ve ever seen — is going to get squashed, because peo­ple are going to come and take the free mon­ey — just a mat­ter of time,” said McGlone. 

Right now with futures, McGlone point­ed out, investors can only access about three-to-one lever­age, as opposed to gold where investors’ lever­age can reach 20-to-one. 

“Lever­age in futures is part of the busi­ness, and it’s been the key thing that’s pre­clud­ing traders from touch­ing the futures, so that’s the key thing that has to change,” he said. “That restrict­ed lever­age has to open up, that’s going to hap­pen with more par­tic­i­pa­tion, I don’t know why the CME is hold­ing back.”

At the time of pub­li­ca­tion, BTF was trad­ing 5.81% low­er to $24.18. 

Are you a UK or EU read­er that can’t get enough investor-focused con­tent on dig­i­tal assets? Join us in Lon­don on Novem­ber 15th and 16th for the Dig­i­tal Asset Sum­mit (DAS) Lon­don. Use code ARTICLE for £75 off your tick­et. Buy it now.

  • Casey Wag­n­er



    Casey Wag­n­er is a New York-based busi­ness jour­nal­ist cov­er­ing dig­i­tal assets and macro eco­nom­ics. Pri­or to join­ing Block­works, she report­ed on mar­kets at Bloomberg News. She grad­u­at­ed from the Uni­ver­si­ty of Vir­ginia with a degree in Media Studies.

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