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ETFs send Bitcoin on a wild ride
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Hi, it’s Zaheer. As expected, the first US Bitcoin futures exchange traded fund — ProShares ETF — began trading on the New York Stock Exchange on Tuesday, after the US Securities and Exchange Commission (SEC) cleared its launch. By Friday there were two, after the Nasdaq approved the listing of the Valkyrie Bitcoin Strategy ETF.
Bitcoin’s wild ride: All this activity caused the price of Bitcoin to see-saw wildly, even by its own high standards. The price of the cryptocurrency rocketed from $57,040 last Friday to an all-time high of almost $67,000 on Wednesday before dropping back down to around $62,000 yesterday.
We explained what crypto ETFs are in last week's Unwrapped, and why they are a milestone for the larger cryptocurrency industry.
Here’s the TL;DR version: Exchange traded funds, or ETFs, are financial instruments that track the value of a particular asset or collection of assets. Traded on traditional exchanges, they allow investors to diversify their holdings without actually owning any of the assets themselves.
Crypto ETFs by extension track the price of one or more cryptocurrencies. Bitcoin futures ETFs — the kind cleared for trading in the US — track the price of Bitcoin futures contracts, which are agreements to buy or sell Bitcoin at a predetermined price at a specified time in the future.
The newly launched ProShares and Bitcoin Strategy ETFs thus offer investors exposure to bitcoin futures, which are regulated, rather than the cryptocurrency itself, which isn't.
Billion-dollar opening: The ProShares ETF launched with an opening price of $40.88 on Tuesday. A total of 24.313 million shares changed hands on the first day itself, equating to a trading volume of just over $1 billion. It's expected to spark the launch of many more ETFs based on Bitcoin futures in the coming days and weeks.
But the next significant step for the SEC would be permitting the launch of Bitcoin spot ETFs — those based on the price of actual bitcoin, not Bitcoin futures. When — or whether — that will happen remains to be seen. SEC Chairman Gary Gensler recently repeated his preference for Bitcoin futures ETFs but the demand for bitcoin spot ETFs is already gathering steam, not least because they would be cheaper to own.
Pricey investment: That’s because futures-based ETFs have higher holding costs, also called carry costs. "An ETF based on futures is not ideal as there is a cost to rolling into the futures contracts, given contango...translating into underperformance versus the underlying asset," Martha Reyes, head of research at digital asset prime brokerage and exchange BEQUANT, told Reuters.
“Contango” refers to a situation in which long-term futures contracts are priced higher than short-term ones. That means as contracts approach settlement day, the ETF will have to sell lower-priced futures and buy higher-priced ones. This erodes returns every time contracts roll off, the Reuters report explained.
Just two days after the Profutures ETF began trading, JPMorgan strategists warned that pent-up demand for Bitcoin futures ETFs risked distorting the entire futures market and ramping up ETF investors’ costs in the process.
They said the carry cost for a Bitcoin futures-based ETF could already be several times the product’s management fees. The ProShares ETF, for instance, has an expense ratio of 0.95%. That’s the percentage of the total funds used for expenses including administration, management and advertising.
For this reason, many fund managers have applied with the SEC to launch ETFs that track the price of Bitcoin itself. They include the VanEck Bitcoin Trust, ProShares, Invesco, Valkyrie and Galaxy Digital Funds. On Tuesday, Grayscale Investments, the world’s largest manager of digital currency assets, announced that it had applied to the SEC to turn its Grayscale Bitcoin Trust into a bitcoin ETF.
Though SEC chairman Gensler is a cautious backer of crypto, having taught a course called Blockchain and Money at MIT’s Sloan School of Management, the regulator remains wary of approving spot ETFs over fears of price manipulation within the crypto space. For now, the SEC believes Bitcoin futures ETFs are the safer investment. Going by Bitcoin’s wild ride this week, we’re inclined to agree.
Let’s move on to the other big developments of the week.
OTHER BIG STORIES BY OUR REPORTERS
Latest on Startup IPOs
Paytm IPO size may still go up by at least Rs 1,000 crore: Paytm’s 16,600-crore initial public offering (IPO), which received the markets regulator’s approval on Friday, is expected to grow in size by around Rs 1,000-2,000 crore, people briefed on the matter said. This will largely be through a secondary share sale — technically known as an offer for sale — where existing investors will sell shares.
Nykaa to launch IPO on October 28: FSN E-Commerce Ventures, the parent company of India's biggest cosmetics etailer Nykaa, will launch its initial public offering (IPO) on Oct. 28.
Shares in the Nykaa IPO — which will be a mix of fresh stock and an offer for sale — will be issued in a price band of Rs 1,085-1,125 apiece to raise 5,352 crore at a valuation of $7.4 billion. "An anchor placement of up to Rs 2,340 crore will open on Wednesday (October 27), and the IPO will close on Monday, November 1," sources said.
PharmEasy valuation jumps to $5.6 billion after pre-IPO funding: API Holdings, the parent company of India’s largest e-pharmacy, has closed a $350-million funding round before filing its draft IPO papers with Sebi. The company has raised about $204 million in primary funding and closed a secondary share sale of $130-140 million, transactions that valued it at $5.6 billion.
Churn in Ola’s top echelons ahead of listing: Two top Ola executives — COO Gaurav Porwal and CFO Swayam Saurabh — have exited the ride-hailing company even as it prepares to list on the bourses by early next year. CEO Bhavish Aggarwal, who is also the cofounder of the company, called the exits a "part of management restructuring”.
Policybazaar's parent firm gets Sebi approval for IPO: Sebi has approved the IPO plans of PB Fintech, the parent company of online marketplaces Policybazaar and Paisabazaar, sources told us. "It is looking at a valuation of around $6-7 billion for the listing," said one of the sources. Another source said PB Fintech could look to list around Diwali. The company declined to comment as it hasn't heard from Sebi.
The Economic Times Startup Awards 2021: The Winners
Urban Company | Abhiraj Singh Bhal
Urban Company CEO Abhiraj Singh Bhal
Abhiraj Singh Bhal, the cofounder and chief executive of Urban Company, has had a busy October. The company, which bagged the top spot in the Covid-led Business Transformation category at The Economic Times Startup Awards 2021, has revamped its policies for service partners, a critical part of its business.
“We believe we are a platform that’s truly for the partners and by the partners," Bhal said regarding the policy changes made in light of the protests by women beauticians operating on its platform. "Urban Company is a platform for great earnings and a very good safety net, and we want to hold ourselves accountable to that." (read more)
Kovai.co | Saravana Kumar
Kovai.co CEO Saravana Kumar
Kovai.co intends to reach unicorn status soon and wants to make Coimbatore a hub of SaaS companies, much like Chennai, according to its founder,
In an interview, Saravana Kumar said Freshworks' Nasdaq listing had fuelled his ambitions to take his own company public, while outlining a roadmap for the winner in the Bootstrap Champ category at The Economic Times Startup Awards 2021. (read more)
Log 9 Materials | Akshay Singhal
Log 9 Materials CEO Akshay Singhal
Log 9 Materials, which won in the Top Innovator category at The Economic Times Startup Awards 2021, is looking to expand its production of advanced lithium-ion cells to giga-factory scale as early as next year.
In an interview, Log 9 cofounder and chief executive Akshay Singhal said the market for two- and three-wheeler electric vehicles is expected to grow exponentially in the next 12-18 months, with demand for battery packs rising 10-fold to around 10 GWh by then. (read more)
ETtech DEALS DIGEST
In India's startup funding boom, the spoils go to a few
Indian startups raised $24.5 billion in January-September, but as much as $12.9 billion of this went to 73 startups that had scooped up previous rounds. This shows how the top two or three startups in high-growth sectors are cornering most of the investor capital. (read more)
PharmEasy closed five deals this year and raised a total of $975 million, while OfBusiness raised $504 million across four deals in the same period.
Byju’s, already India's most valued startup, raised more cash than any other Indian startup so far this year.
Year-to-date, follow-on fundraising in 2021 has more than doubled compared to the past couple of years.
Also Read: India's crypto startups on a record fundraising spree
Big Tech, Big News
Facebook CEO Mark Zuckerberg
Facebook faces ire of its own Oversight Board: Facebook isn’t being clear with the people who use its platforms and users are consistently left guessing about why the company removed their content, the Oversight Board says.
Google slashes commission for in-app subscriptions: The tech giant has slashed the commission for in-app subscriptions to 15% effective January 1 under mounting pressure from developers in India, who as it turned out weren’t impressed by the move and termed as merely a distraction tactic.
Facebook plans name change to reflect metaverse focus: Facebook Inc. is planning to change its name this week to reflect its focus on building the metaverse. CEO Mark Zuckerberg plans to talk about the name change at the company’s annual Connect conference on October 28, but it could be revealed before that.
IN OTHER TOP NEWS
■ Zomato, Fabindia face flak on social media: Food delivery app Zomato and ethnic apparel brand Fabindia came in for some heavy-duty social media backlash over back-to-back incidents purportedly involving questions around tolerance and inclusivity.
■ Tata pilots its super app in the east and west: Tata Group is putting its ecommerce logistics in place in Jamshedpur in Jharkhand and Mithapur in Gujarat, as part of an expansion of online deliveries to its employees in those cities through its new super app.
■ Rebel Foods eyes Asia expansion: Rebel Foods, the newest member of India’s startup unicorn club, will expand the footprint of its brands Faasos, Behrouz Biryani and Lunchbox to markets across Southeast Asia in partnership with Foodpanda.
That's about it from us this week. Stay safe and get that jab. 💉
Bitcoin’s wild ride: All this activity caused the price of Bitcoin to see-saw wildly, even by its own high standards. The price of the cryptocurrency rocketed from $57,040 last Friday to an all-time high of almost $67,000 on Wednesday before dropping back down to around $62,000 yesterday.
We explained what crypto ETFs are in last week's Unwrapped, and why they are a milestone for the larger cryptocurrency industry.
Here’s the TL;DR version: Exchange traded funds, or ETFs, are financial instruments that track the value of a particular asset or collection of assets. Traded on traditional exchanges, they allow investors to diversify their holdings without actually owning any of the assets themselves.
Crypto ETFs by extension track the price of one or more cryptocurrencies. Bitcoin futures ETFs — the kind cleared for trading in the US — track the price of Bitcoin futures contracts, which are agreements to buy or sell Bitcoin at a predetermined price at a specified time in the future.
The newly launched ProShares and Bitcoin Strategy ETFs thus offer investors exposure to bitcoin futures, which are regulated, rather than the cryptocurrency itself, which isn't.
Billion-dollar opening: The ProShares ETF launched with an opening price of $40.88 on Tuesday. A total of 24.313 million shares changed hands on the first day itself, equating to a trading volume of just over $1 billion. It's expected to spark the launch of many more ETFs based on Bitcoin futures in the coming days and weeks.
But the next significant step for the SEC would be permitting the launch of Bitcoin spot ETFs — those based on the price of actual bitcoin, not Bitcoin futures. When — or whether — that will happen remains to be seen. SEC Chairman Gary Gensler recently repeated his preference for Bitcoin futures ETFs but the demand for bitcoin spot ETFs is already gathering steam, not least because they would be cheaper to own.
Pricey investment: That’s because futures-based ETFs have higher holding costs, also called carry costs. "An ETF based on futures is not ideal as there is a cost to rolling into the futures contracts, given contango...translating into underperformance versus the underlying asset," Martha Reyes, head of research at digital asset prime brokerage and exchange BEQUANT, told Reuters.
“Contango” refers to a situation in which long-term futures contracts are priced higher than short-term ones. That means as contracts approach settlement day, the ETF will have to sell lower-priced futures and buy higher-priced ones. This erodes returns every time contracts roll off, the Reuters report explained.
Just two days after the Profutures ETF began trading, JPMorgan strategists warned that pent-up demand for Bitcoin futures ETFs risked distorting the entire futures market and ramping up ETF investors’ costs in the process.
They said the carry cost for a Bitcoin futures-based ETF could already be several times the product’s management fees. The ProShares ETF, for instance, has an expense ratio of 0.95%. That’s the percentage of the total funds used for expenses including administration, management and advertising.
For this reason, many fund managers have applied with the SEC to launch ETFs that track the price of Bitcoin itself. They include the VanEck Bitcoin Trust, ProShares, Invesco, Valkyrie and Galaxy Digital Funds. On Tuesday, Grayscale Investments, the world’s largest manager of digital currency assets, announced that it had applied to the SEC to turn its Grayscale Bitcoin Trust into a bitcoin ETF.
Though SEC chairman Gensler is a cautious backer of crypto, having taught a course called Blockchain and Money at MIT’s Sloan School of Management, the regulator remains wary of approving spot ETFs over fears of price manipulation within the crypto space. For now, the SEC believes Bitcoin futures ETFs are the safer investment. Going by Bitcoin’s wild ride this week, we’re inclined to agree.
Let’s move on to the other big developments of the week.
OTHER BIG STORIES BY OUR REPORTERS
Latest on Startup IPOs
Paytm IPO size may still go up by at least Rs 1,000 crore: Paytm’s 16,600-crore initial public offering (IPO), which received the markets regulator’s approval on Friday, is expected to grow in size by around Rs 1,000-2,000 crore, people briefed on the matter said. This will largely be through a secondary share sale — technically known as an offer for sale — where existing investors will sell shares.
Nykaa to launch IPO on October 28: FSN E-Commerce Ventures, the parent company of India's biggest cosmetics etailer Nykaa, will launch its initial public offering (IPO) on Oct. 28.
Shares in the Nykaa IPO — which will be a mix of fresh stock and an offer for sale — will be issued in a price band of Rs 1,085-1,125 apiece to raise 5,352 crore at a valuation of $7.4 billion. "An anchor placement of up to Rs 2,340 crore will open on Wednesday (October 27), and the IPO will close on Monday, November 1," sources said.
PharmEasy valuation jumps to $5.6 billion after pre-IPO funding: API Holdings, the parent company of India’s largest e-pharmacy, has closed a $350-million funding round before filing its draft IPO papers with Sebi. The company has raised about $204 million in primary funding and closed a secondary share sale of $130-140 million, transactions that valued it at $5.6 billion.
Churn in Ola’s top echelons ahead of listing: Two top Ola executives — COO Gaurav Porwal and CFO Swayam Saurabh — have exited the ride-hailing company even as it prepares to list on the bourses by early next year. CEO Bhavish Aggarwal, who is also the cofounder of the company, called the exits a "part of management restructuring”.
Policybazaar's parent firm gets Sebi approval for IPO: Sebi has approved the IPO plans of PB Fintech, the parent company of online marketplaces Policybazaar and Paisabazaar, sources told us. "It is looking at a valuation of around $6-7 billion for the listing," said one of the sources. Another source said PB Fintech could look to list around Diwali. The company declined to comment as it hasn't heard from Sebi.
The Economic Times Startup Awards 2021: The Winners
Urban Company | Abhiraj Singh Bhal
Abhiraj Singh Bhal, the cofounder and chief executive of Urban Company, has had a busy October. The company, which bagged the top spot in the Covid-led Business Transformation category at The Economic Times Startup Awards 2021, has revamped its policies for service partners, a critical part of its business.
“We believe we are a platform that’s truly for the partners and by the partners," Bhal said regarding the policy changes made in light of the protests by women beauticians operating on its platform. "Urban Company is a platform for great earnings and a very good safety net, and we want to hold ourselves accountable to that." (read more)
Kovai.co | Saravana Kumar
Kovai.co intends to reach unicorn status soon and wants to make Coimbatore a hub of SaaS companies, much like Chennai, according to its founder,
In an interview, Saravana Kumar said Freshworks' Nasdaq listing had fuelled his ambitions to take his own company public, while outlining a roadmap for the winner in the Bootstrap Champ category at The Economic Times Startup Awards 2021. (read more)
Log 9 Materials | Akshay Singhal
Log 9 Materials, which won in the Top Innovator category at The Economic Times Startup Awards 2021, is looking to expand its production of advanced lithium-ion cells to giga-factory scale as early as next year.
In an interview, Log 9 cofounder and chief executive Akshay Singhal said the market for two- and three-wheeler electric vehicles is expected to grow exponentially in the next 12-18 months, with demand for battery packs rising 10-fold to around 10 GWh by then. (read more)
ETtech DEALS DIGEST
In India's startup funding boom, the spoils go to a few
Indian startups raised $24.5 billion in January-September, but as much as $12.9 billion of this went to 73 startups that had scooped up previous rounds. This shows how the top two or three startups in high-growth sectors are cornering most of the investor capital. (read more)
PharmEasy closed five deals this year and raised a total of $975 million, while OfBusiness raised $504 million across four deals in the same period.
Byju’s, already India's most valued startup, raised more cash than any other Indian startup so far this year.
Year-to-date, follow-on fundraising in 2021 has more than doubled compared to the past couple of years.
- M2P Fintech is in talks with top-tier venture capital fund Insight Partners for a fresh funding round that will likely value it at more than $600 million.
- Google is in talks to invest $50-$75 million in social commerce platform Meesho, indicating its focus on backing promising Indian startups like Dunzo and InMobi's Glance.
- Cred has raised $251 million in a Series E funding round co-led by Tiger Global and Falcon Edge at a valuation of $4.01 billion, underscoring the unabating interest that Indian fintech is garnering from investors.
- Good Glamm Group has acquired new-age media startup ScoopWhoop Media in an all-cash deal. This is the fourth acquisition by the parent entity of MyGlamm, after The Moms Co, POPxo and BabyChakra.
Also Read: India's crypto startups on a record fundraising spree
Big Tech, Big News
Facebook faces ire of its own Oversight Board: Facebook isn’t being clear with the people who use its platforms and users are consistently left guessing about why the company removed their content, the Oversight Board says.
Google slashes commission for in-app subscriptions: The tech giant has slashed the commission for in-app subscriptions to 15% effective January 1 under mounting pressure from developers in India, who as it turned out weren’t impressed by the move and termed as merely a distraction tactic.
Facebook plans name change to reflect metaverse focus: Facebook Inc. is planning to change its name this week to reflect its focus on building the metaverse. CEO Mark Zuckerberg plans to talk about the name change at the company’s annual Connect conference on October 28, but it could be revealed before that.
IN OTHER TOP NEWS
■ Zomato, Fabindia face flak on social media: Food delivery app Zomato and ethnic apparel brand Fabindia came in for some heavy-duty social media backlash over back-to-back incidents purportedly involving questions around tolerance and inclusivity.
■ Tata pilots its super app in the east and west: Tata Group is putting its ecommerce logistics in place in Jamshedpur in Jharkhand and Mithapur in Gujarat, as part of an expansion of online deliveries to its employees in those cities through its new super app.
■ Rebel Foods eyes Asia expansion: Rebel Foods, the newest member of India’s startup unicorn club, will expand the footprint of its brands Faasos, Behrouz Biryani and Lunchbox to markets across Southeast Asia in partnership with Foodpanda.
That's about it from us this week. Stay safe and get that jab. 💉
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