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NEW DELHI : The first bitcoin-based exchange-traded fund called the ProShares Bitcoin Strategy ETF, recently started trading in the US, marking a milestone for the fledgeling cryptocurrency market. Thanks to this, bitcoin surged to hit its all-time high of $67,118.89 on Wednesday, putting the $100,000 level within reach by the end of the year.

The fund, which trades on the NYSE under the ticker symbol BITO, does not invest directly in bitcoin, but seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.

BITO has become one of the most sought-after funds, as it became the fastest ETF to reach the $1 billion mark in assets under management (AUM). The fund has traded over $2 billion in volume since its debut on Tuesday. It is also accessible to Indian investors with US brokerage accounts. In time, other bitcoin or crypto ETFs in the US may become similarly accessible.

According to Viraj Nanda, chief executive officer, Globalise, a platform for guided global investing, to be able to purchase US-listed instruments, Indians need to have access to the US markets.

“For this, they will need a US brokerage account, which can be opened with providers such as Globalise. After opening a US brokerage account, the process requires customers to remit money under the LRS route. Once the money is remitted into the brokerage account, it is held as cash in dollars. The customer can then choose to invest this money in any instrument in the US," said Nanda. LRS stands for liberalized remittance scheme

Under LRS, an Indian individual can send up to $250,000 per year overseas for travel, education and medical care as well as for the purchase of shares.

On investing in futures-based ETFs, experts believe that since the US ETF market is much more developed, liquidity will not be an issue.

“Once the ETFs come along, a lot of pension funds and retirement funds can put them into their portfolios. There will be a lot of capital, which will get piled on. Grayscale has also applied for an ETF and they are basically vouching for a spot ETF. Once the spot is there that is linked to physical bitcoin, and the benchmarking will become much easier, said Amit Kumar Gupta, a New Delhi-based portfolio manager at Adroit Financial Services Pvt. Ltd, a Sebi-registered portfolio management firm.

US-based Grayscale Investments LLC is the world’s biggest digital asset manager with an AUM of over $52 billion. “ETF will invite a lot of institutional interest," said Sidharth Sogani, founder and CEO, CREBACO Global, a research, rating, and intelligence company focused on blockchain and cryptocurrencies.

“Bitcoin needs a lot of upkeep. An investor may forget the key, there is liquidation as well hacking issues. ETFs can bypass all these hassles," added Sogani.

However, remember that a rise in bitcoin prices may not result in a similar increase in the value of fundholding positions in bitcoin futures contracts.

For retail investors, Sogani suggests that owning an actual part of a blockchain is more important. “For the long-term retail investor, going directly for bitcoin makes much more sense, as ETFs are basically designed for institutional investors," the expert noted.

Investors should remember that while bitcoin ETFs listed in the US are better regulated, there might be higher operating expenses involved compared with direct bitcoin buying. For example, the expense ratio for ProShares Bitcoin Strategy ETF is 95 basis points. On the other hand, the average expense ratio of ETFs in India is less than 20 bps. There also may be costs involved in maintaining US brokerage accounts opened on global investing platforms.

Additionally, bitcoin future ETFs are highly speculative products and can see bouts of high volatility.

For investors looking to invest in bitcoin, Gupta suggests that bitcoin in the near term can go to $71-72,000 level, and then we have some retracement. “For retail investors, SIP is a much more suitable mode of investment, with a caution that it should not exceed 5% of your asset allocation," said Gupta.

Sogani also feels that bitcoin may extend the current rally up to $85,000-100,000 levels and then may see about 20-25% correction.

Before investing in bitcoin, investors should focus on the level of risk they are taking compared with the level of risk they are comfortable taking. Moreover, bitcoin futures ETFs have heightened risks compared with other funds, and it is important to consider how any investment fits into your overall investment plan.

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