America’s First Bitcoin ETF Wants Exemption From CME Regulations

The Chicago Mercantile Exchange may be unable to keep up with the growth of Bitcoin’s first ETF in the United States.
America's First Bitcoin ETF Wants Exemption From CME Regulations

In Brief:

  • ProShares wants to change its new products in just a week after the launch of its  futures Bitcoin ETF. 
  • 25% of its ETF is being invested into a Cayman Islands entity. 
  • The remaining 75% is invested in Treasury Securities and the Repo Market

Just a week after the big launch of Proshares, it wants to change the way it runs its new Bitcoin futures ETF.

According to Barron’s, ProShares CEO Michael Sapir has requested an exemption from trading limits at the Chicago Mercantile Exchange, where the company buys futures contracts for its Bitcoin ETF, as well as the ability to participate in other forms of derivatives trades.

Bloomberg ETF analyst Eric Balchunas stated that Barron’s report validates what he’s been hearing too, that ProShares is filing to be free from CME position limitations AND he can utilise swaps if necessary. He also said that both would obviously be extremely beneficial in terms of maintaining exposure if $BITO continues to grow. 

The CME has set a limit of 2,000 Bitcoin futures contracts expiring in the same month. In November, ProShares can only retain 4,000 contracts, with a total of 5,000 contracts. ProShares currently has 2,133 contracts for November and 1,679 contracts for October, accounting for 76 percent of its total contract maximum.

The ETF puts 25% of investor money into a Cayman Islands entity that is then told to buy Bitcoin futures on the Chicago Mercantile Exchange. Since its start on Tuesday, the ETF’s assets under management have grown to more than $1 billion in 24 hours.

ProShares is now investing the remaining 75% in Treasury Securities and the Repo Market. To generate leverage on its investments, ProShares also borrows money from the repo market. ProShares invests this leveraged cash in futures contracts, which are cash-settled bets on the future price of Bitcoin.

ProShares is considering investing the remaining 75% in something other than treasury or repo securities, according to Sapir. He suggested that it invest in future-dated contracts, swaps, or structured notes. ProShares detailed this in a prospectus released on Tuesday. The fund may invest in other assets that connect with the price of Bitcoin and other cryptocurrencies after consultation with the SEC Staff.

The firm also stated that it may invest in stocks that are linked to the cryptocurrency business, such as Bitcoin miner Riot or MicroStrategy, a cloud computing firm based in the United States that became enamoured with Bitcoin about this time last year.

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