ETF Frenzy Pushes Bitcoin To New All-Time-High

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Bitcoin, the peer-to-peer electronic cash system pioneered by Satoshi Nakamoto twelve years ago, scaled fresh all-time-high of $66930.39 on October 20. The euphoria in the run-up to the SEC approval of a Bitcoin Futures-based ETF triggered an unprecedented bullish frenzy while its near-record listing exacerbated the sentiment, charging up not just the lead cryptocurrency but the entire crypto space.

The market capitalization of Bitcoin, the top store-of-value crypto asset scaled up to $1.24 trillion from $825 billion at the end of previous month. Total market capitalization of all crypto assets including coins, tokens and stablecoins increased to $2.69 trillion from $1.90 trillion at the end of September. Among the top-100 crypto assets by market capitalization, only 30 have recorded a price decline in the past week. Likewise, in the top-15 ranked coins, only one coin i.e., Algorand (ALGO) has recorded a weekly price decline, implying overall strength of the market.

Bitcoin (BTC) is currently trading at $64,766.40, recording a weekly growth of 12.3 percent and an annual growth of 400 percent. Investor profile shows in-the-money holders at 99 percent, long duration (more than a year) holders at 60 percent, and large holders at 11 percent.

Closest contender Ethereum (ETH) gained 12.5 percent in the past week and is currently trading at $4,211.60, registering an annual growth of more than 900 percent. The Ethereum investor profile, similar to that of Bitcoin shows 100 percent holders making money at current prices and 61 percent holding on for more than a year. However, the large holders account for a significantly higher, 42 percent of the holdings.

There is no change in the rankings of the top-15 coins (in terms of aggregate market capitalization as per coinmarketcap.com), except that Solana (SOL) made weekly gains of more than 22 percent and jumped one rank higher to the 5th spot, replacing XRP (XRP). Solana's scalability and lower transaction fees relative to Ethereum appear to have reinforced its image as an "Ethereum killer" making it popular, especially among high-frequency traders.

The top 15 coins based on market capitalization as of this writing are Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Cardano (ADA), Solana (SOL), XRP (XRP), Polkadot (DOT), Dogecoin (DOGE), Terra (LUNA), Litecoin (LTC), Avalanche (AVAX), Bitcoin Cash (BCH), Algorand (ALGO), Polygon (MATIC), and Stellar (XLM).

Down the pecking order of coins, we spotted 94th ranked Kadena (KDA) that has gained 60 percent in the past week. The mineable coin is also ranked 18th among the Proof of Work coins. 65th ranked Nervos Network (CKB) gained 38 percent, and 84th ranked Syscoin (SYS) moved up 36 percent over the past seven days.

The top 5 stablecoin tokens ranked according to market capitalization continue to be Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Dai (DAI), and TerraUSD (USDT).

Top tokens (excluding the stablecoins mentioned above) based on market capitalization continue to be Uniswap (UNI), Wrapped Bitcoin (WBTC), Chainlink (LINK), SHIBA INU (SHIB) and Axie Infinity (AXS).

The massive attention that the crypto world received post the SEC imprimatur for a futures-based ETF is likely to continue in the days to come with more players keen to emerge. The endless debate on the pros and cons of an ETF route vis-à-vis the conventional digital wallet mode is also likely to get more intense.

Until recently, Bitcoin was synonymous with cryptocurrency. Anyone who contemplated a bet on a digital asset toyed with the thought of "To Buy Bitcoin or not to Buy?" Soon alternatives emerged and the crypto universe is now around 13,000, spanning coins, tokens, stablecoins, etc. Also emerged Bitcoin futures and exchange traded funds themed around Bitcoin and other cryptocurrencies. The most recent crypto innovation is a Bitcoin Futures-based ETF.

With the U.S-based ProShares launching the ProShares Bitcoin Strategy ETF, which has been recently listed on NYSEArca under the ticker BITO, a vexing question confronting prospective crypto investors could be whether "To bet BITO or BTC?".

For an investor watching crypto space looking only at gains and losses, ETFs provide a simpler alternative to buying and selling the cryptocurrency. For such investors, an ETF intermediary could rule out issues of complex storage and security procedures required for cryptocurrency investing. And of course, the traditional exchanges would suffice, with no need to approach the cryptocurrency exchanges. Also, the short-selling feature of ETFs could allow greater price discovery when expectations are that prices are likely to go down.

A Bitcoin futures ETF would be tracking contracts that speculate on the future price of Bitcoin and not its current or spot price. For the same reason, prices of the ETF and Bitcoin would not exactly match. The ETF could trade at a premium during a bull market or at a discount during a bear market. The Fund's efficacy in tracking the prices as well as the costs associated with periodic rollover of the futures contracts could also impact the results of ETF investing.

The most basic concept would be to understand that ETFs are vehicles that track the price of an underlying, in this case Bitcoin Futures Contracts. Retail investors would do well to note that in a BTC Futures ETF, they are not buying Bitcoin. Instead, they would be buying shares in a fund that buys contracts that speculate on the future price of Bitcoin.

Bitcoin ETFs can be considered an innovation to exploit the price movements that have of late become the characteristic of Bitcoin. Though Bitcoin owes much of its popularity to the extreme price movements, there is more to Bitcoin than its price volatility.

If the enthusiasm in Bitcoin is to use it as a medium of exchange, then an ETF intermediary may be superfluous. Also, an ETF intermediary could go against the spirit of direct payments obviating intermediaries that Bitcoin was pioneered for.

Bitcoin is designed as a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution. It is a decentralized digital currency that can be bought, sold and exchanged directly.

The intricacies surrounding futures contacts make Bitcoin Futures-based ETF and Bitcoin two inherently different set of assets with dissimilar liquidity, risk and utility profiles. The choice between the two has to be made based not just on motives but also the acceptable risk threshold. The dilemma is set to aggravate as more variants of Bitcoin or crypto based products become available, and subject to investor scrutiny.

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