Bitcoin's Big Step

Another asset outside of the stock market that continues to flirt with record highs is Bitcoin. The cryptocurrency has pulled back slightly from its latest heights around $67,000 last week, but it's still up some 50% since the start of October.

The latest catalyst for the rally was the launch of the first exchange-traded funds invested in Bitcoin futures. There aren't yet any U.S. ETFs that directly hold the cryptocurrency, which aren't OK with regulators, but it's nonetheless a big step toward making Bitcoin investable for more people and institutions.

Here are Daren Fonda and Avi Salzman writing in Barron's latest cover story:

After years of false starts, a Bitcoin-futures-based exchange-traded fund, the ProShares Bitcoin Strategy ETF (BITO), debuted Tuesday on the New York Stock Exchange. It racked up a record $1.1 billion in assets in two days, but it already has company. Another futures ETF, the Valkyrie Bitcoin Strategy (BTF), launched on the Nasdaq on Friday. Other futures ETFs that could win approval soon include funds from VanEck, AdvisorShares, and ARK 21Shares.

The flurry of futures ETFs may be a turning point for Bitcoin and the broader crypto investment space. Bitcoin came to life as a piece of libertarian digital agitprop—a decentralized money-transfer system aimed at swiping power from central bank fiat money and the broader financial establishment. That ethos still prevails in crypto, which remains both threatening and alluring to Wall Street. JPMorgan Chase CEO Jamie Dimon recently described Bitcoin as “worthless,” even as the firm’s investment bank and wealth management divisions aim to profit off it.

Love/hate feelings aside, Bitcoin and Wall Street are converging for mutual gain. 'With a $2 trillion market value and 200 million users, the digital asset universe is too large to ignore,' observed Alkesh Shah, head of crypto strategy at Bank of America, in a recent coverage launch of crypto.

Soon there will be not only the ETFs, but a multitude of derivatives already launching around those securities. That means new revenue for many Wall Street firms.

For many individual investors and both robo and human advisors, having Bitcoin exposure in the form of an ETF will make it easier to add to portfolios. They can slide a Bitcoin ETF into existing accounts and use all the same tax-reporting and rebalancing software and strategies, Daren and Avi write, removing a lot of friction.

But the Bitcoin futures ETFs have their share of quirks and potential drawbacks as well, many regarding their ability to accurately track the often-volatile price of Bitcoin.

For much more about the new wave of Bitcoin-linked ETFs coming to market and all that investors should know, read Barron's latest cover story.