Is The New Futures-Based Bitcoin ETF Really An ‘Inferior’ Product?

Tomorrow, the first bitcoin exchange-traded fund (ETF) in the U.S. is scheduled to go live on The New York Stock Exchange.

The ProShares Bitcoin Strategy ETF, which will trade under the ticker symbol BITO, will invest “primarily” in bitcoin futures, according to a statement announcing the planned launch.

This new fund could provide investors with significant opportunity to gain exposure to bitcoin without using a digital currency exchange like Coinbase or Kraken.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

However, not everyone has provided an optimistic take on this development, with a recent MarketWatch article, penned by markets editor Mark DeCambre, emphasizing the concerns voiced by registered investment advisers (RIAs).

The piece quoted Ben Cruikshank, head of investing platform Flourish, which is owned by MassMutual and works with RIAs who have a combined total of more than $1 trillion in assets under management.

“The firms we are speaking to are extremely skeptical” of a futures-based bitcoin ETF, he stated.

“The feedback that I’m getting is a derivative is a less efficient form of ownership,” Cruikshank noted.


Further, RIAs have been noting that the bitcoin ETF scheduled to go live tomorrow is a “complicated futures product,” which is less straightforward than opening an account at Coinbase.

“It’s a hard thing to justify an inferior futures product,” said Cruikshank. “That is less my feedback and more what firms are telling me.”

Several analysts weighed in on these concerns, offering their perspective.

“Cruikshank is right on the money,” said Ben Armstrong, founder of BitBoy Crypto.

“Spot Bitcoin that has to be settled in Bitcoin is far more bullish than futures settled on paper.”

“But don’t let that take the shine off a futures ETF as a whole,” he stated.

“This is a paradigm shift. And it’s giving old school investors that chance to have exposure to Bitcoin.”

“It’s just another step to adoption which is what everyone in crypto likes to see.”

Shone Anstey, chairman & CEO of network infrastructure company LQwD Fintech Corp., also spoke to this matter.

He noted that the futures-based bitcoin ETF would come with greater costs and complexity compared to a spot-based fund.

However, this development does “represent a significant regulatory win for the Bitcoin industry and may encourage the SEC to approve a Bitcoin Spot Price ETF.”

Armando Aguilar, vice president of Digital Assets Strategy for Fundstrat Global Advisors, provided a similar point of view.

“A futures-based ETF is not what everyone in the space was expecting but it’s a step in the right direction as digital assets cross into the mainstream,” he stated.

Silvia Jablonski, cofounder and chief investment officer for ETF sponsor Defiance ETFs, also commented on the situation.

“It’s very exciting news that Bitcoin in the ETF format is going to trade in US markets tomorrow,” she stated.

“I believe that this opens up the world of crypto to the masses like never before.”

“Is it the best vehicle for investors? Well, it depends on the investor,” noted Jablonski.

“Assuming that the investor is not mining cryptocurrency or comfortable with storing in a digital wallet, the next and easiest and best way to get pure Bitcoin exposure is to buy the physical asset/currency,” she stated.

“The second choice is perhaps looking at trusts that invest in cryptocurrencies. Those are the first movers in terms of listed fund-like structures, and are already trading in the secondary market (such as Grayscale and Bitwise),” said Jablonski.

“The ETF is really the third derivative of exposure to Bitcoin via an exchange-listed wrapper,” she stated.

“For investors who are brand new to trading crypto and are not comfortable with the aforementioned ways to get direct access, futures based etfs are a good alternative.”

However, she made sure to point out the potential drawbacks investors could face by putting their money into ETFs like the one that just received approval from The U.S. Securities and Exchange Commission.

“They have tracking-error potential, additional costs associated with contango and limits in terms of AUM available to rebalance the fund after a certain size which poses additional risk,” she noted.

Possible Increase In Demand

The introduction of this new ETF could potentially result in greater demand, several analysts pointed out.

Aguilar spoke to the proliferation of futures-based funds like the one going live tomorrow, noting that while they are not spot ETFs, he still thinks they will manage to attract substantial inflows from investors.

Jack McDonald, CEO of fintech firm PolySign, also chimed in.

“In general, I think a Bitcoin ETF will generate more demand for Bitcoin than not having one because it solves a lot of regulatory issues that many investors seek clarity on.” he stated.

“That said, a spot ETF for Bitcoin would generate much more demand than a futures ETF for Bitcoin given the relative costs and fees associated with the latter.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.


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El Salvador Disables Bitcoin Price On Chivo App To Stop Scalpers

Bitcoin traders have found a way to use the recently launch Chivo App, the countries own BTC wallet, by El Salvador’s government to make a profit. As part of their BTC Law, this app operates with the second layer payment solution lightning network.

Related Reading | Bitcoin Price Smashes Record For Highest Weekly Candle Close Ever

Via its official Twitter handle Chivo Wallet announced that Salvadorans will be unable to track the price of BTC on the app. According to the report presented by the team behind the app, some users have been using it to do “scalping”.

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A type of short-term trading modality, scalping is performed by an operator to take advantage of an asset’s price fluctuations in low timeframes. In previous versions, the app allowed users to “freeze” the price of Bitcoin giving traders an edge to perform this practice by comparing it to exchange rates.

The Chivo Wallet allows users to move BTC via the lightning network to other Chivo users or external BTC wallets. Thus, traders can make a profit by scalping the app’s BTC price. The team behind the app clarified the following on the reasons for the decision:

The “scalping” performed consisted of taking advantage of Chivo keeping the rate frozen for 1 minute and taking advantage of that minute to compare the rate with other exchanges and see if the Bitcoin price went down or up.

In the future, the price of Bitcoin will have limited visibility to prevent these operators from accessing what the team called “an unlimited source of money”. The app will not ban trading itself, just the capacity to “freeze” BTC’s price on the platform.

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Related Reading | Number Of Bitcoin Whales On The Rise As BTC Chases New All-Time High

Salvadorans Will Have New Functionalities On Their Bitcoin Wallet

On the contrary, the team behind Chivo claimed that is working on adding a trading feature for the wallet. In the future, the app will let these operators trade with BTC with any modality, but with the asset’s price display in real-time.

However, Salvadorans can already profit from BTC exposure. Since the wallet was launched, when the government gave citizens a $30 bonus in the cryptocurrency, Bitcoin has increased its value by over 30%.

Upon launch, El Salvador and its president Nayib Bukele surely underestimated or failed to consider crypto traders’ capacity to leverage a situation for their benefit. It remains to be seen whether disabling BTC’s price from the app will effectively stop scalpers.

Related Reading | TA: Bitcoin Gearing For Lift-Off to $65K: Rally Isn’t Over Yet

At the time of writing, BTC trades at $$61,980 with a 1% profit in the daily and a 13.3% profit in the weekly charts, respectively. BTC’s price remains in a rally and it’s near $64,500, its all-time high.



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Crypto Frauds in The UK Resulted in $200 Million Stolen in 2021: Report

The number of cryptocurrency-related crimes in the United Kingdom has significantly surged in the first nine months of 2021 comparing to last year, reads a recent report. The local police warned that bad actors often use a fake celebrity endorsement to lure people in.

Youngsters Are The Most in Danger

According to a recent Bloomberg coverage, there have been 7,118 reports of schemes related to digital assets in the UK between January and October this year. Victims parted out with nearly $200 million for that period, which is 30% more than the whole of 2020.

The authorities pointed out that over 50% of the duped people were between 18 and 45 years old. Investing in bitcoin and the altcoins is highly popular among the youngest locals as nearly half of those under 30 years old choose the crypto market as their first investment option. As such, it’s somewhat expected that they have become a target for fraudsters.

The City of London Police also informed that the most common tactic of the criminals is to lure people into fake celebrity endorsements, as 79% of all the cases were of that type. Temporary Detective Chief Inspector Craig Mullish commented:

“Reports of cryptocurrency fraud have increased significantly over the past few years. Being online more means criminals have a greater opportunity to approach unsuspecting victims with fraudulent investment opportunities.”

Speaking of such schemes, it is worth noting that last year Steve Wozniak filed a lawsuit against YouTube. According to him, the platform did not take necessary actions to prevent fake Bitcoin giveaways with his face on them. A year later, though, he lost the case as his arguments were not strong enough to bring him a court victory.


The UK – Paradise for Crypto Scammers

The United Kingdom classifies as a “paradise” for the local criminals when talking about crypto-related frauds. At least, that is what David Lindberg – Chief Executive of retail banking at NatWest – opined recently.

He said he had “never seen a market worse” than the UK for scams. To solve the issue, the British government, the police, banks, and social media operators should join their forces:

“Fraud and scams are an industry. They’re intelligent, and they move fast, and it’s heartbreaking to see how they try to destroy lives.”

The top banker also warned that some of the bad actors create websites where people can invest in Bitcoin, Ethereum, and other cryptocurrencies, However, they are fake in reality and the money goes to the fraudsters’ pockets.


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Arbitrage bot’s spam attack on the Polygon network generated $6,800 per day

The growth of layer-two protocols has been one of the major stories of 2021 as the rising popularity of decentralized finance (DeFi) and nonfungible tokens (NFT) have driven transaction costs higher on the Ethereum (ETH) network effectively pricing out many participants. 

Earlier this year the Polygon network, formerly known as MATIC, emerged as one of the top contenders in the race for an effective Ethereum layer-2 scaling solution, and the project’s QuickSwap DeFi platform was also one of the more successful Uniswap clones.

The platform was quite popular initially but as other platforms like Arbitrum and Optimism popped up, discussions about Polygon fell to the wayside and some traders even refer to the platform as “slow”. Data from Flipside Crypto shows that the low-cost capabilities of the Polygon network came under attack after a cleverly devised arbitrage bot managed turn 14 Ether in 218.5 Ether in less than four months.

The bot filled each block with “meaningless transactions”

According to data from Flipside Crypto, the attack began in early May and at one point in June, pushed transactions on the Polygon network went as high as 8 million per day. In the same timeframe, the maximum number of transactions on the Ethereum network was at 1.2 million.

Number of transactions on Ethereum vs. Polygon. Source: Flipside Crypto

Data found on a Polygon forum indicates that the attacker has been inflating transaction volumes by as much as 90% by stuffing each block full of “meaningless transactions” while only having to pay around 0.02 MATIC to spam the entire block and roughly $1,000 for an entire day.

A deeper dive into the transactions and addresses interacting on the network revealed that around 30% of the network’s transaction count was coming from two contracts which have been determined to be arbitrage bots that conduct thousands of daily transactions to various decentralized exchanges (DEX).

The exact reason why the spammer chose to fill each block when the bots were only conducting 2,000 – 4,000 trades per day is uncertain, but one theory is that it was done in an effort to prevent anyone else from front running the trade.

Related: Polygon can hit $3.50 in Q4 as MATIC’s 20% weekly rally triggers bull flag setup

The bot netted $6,800 in average daily profit

Over a period of 120 days, the bot was able to grow an initial amount of 14 Ether to 218.5 Ether, which is currently worth $813,694.

That works out to an average daily of profit roughly $6,800 before including the cost to spam the network.

In response to the spammer, the team behind Polygon ultimately decided to increase the minimum cost of a transaction from 1 gwei to 30 gwei as a way to fight spam and improve network health.

The move appears to have achieved its intended goal as data provided by Delphi Digital shows that the spike in average transaction costs coincided with a marked decline in the number of daily transactions because it now costs $30,000 to spam the network for an entire day.

Polygon average gas cost vs. daily transaction count. Source: Delphi Digital

Network data shows that the spam transactions have dropped from 2 million to 500,000 transactions per day, a decrease of 75%, but they still account for 16.7% of daily transactions. This means that the bots are spending roughly $5,000 of their daily $6,800 profit on gas to keep the scheme running.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.