GALAXY DIGITAL FILES FOR FUTURES ETF
Galaxy Digital is a diversified financial services and investment management company in digital assets, cryptocurrencies and blockchain protocols.
The firm has recently filed a prospectus with the Securities and Exchange Commission for its new product.
The company intends to launch a Bitcoin futures exchange-traded fund.
What did the company announce?
According to various sources and the SEC’s public filings, Galaxy Digital has filed its preliminary prospectus to launch the Bitcoin futures exchange-traded fund.
According to the prospectus, the exchange-traded fund will be publicly traded on the New York stock exchange (NYSE). Galaxy digital will offer the fund’s shares to the general public once it receives SEC’s approval. Anyone with a brokerage account will be able to buy and sell shares of the ETF.
The objective of the fund is to imitate the performance of the Bloomberg Galaxy bitcoin index excluding the fund’s expenses and other liabilities. Thus, investors can track their portfolio by checking the status of the aforementioned index.
The company has also mentioned that the fund will not buy or sell Bitcoin directly. All trades will be executed by the custodian of the fund. Galaxy Digital may direct the custodian to sell its assets in case of unforeseen expenditures.
Although the fund will not buy Bitcoin directly, it will provide direct exposure to its investors. The value of the shares will be in direct relation with the price of Bitcoin. The fund will not access derivatives that subject the trust to credit faults.
Are there risks involved?
No investment comes without risk. Bitcoin investments have been known to be riskier and more volatile than traditional instruments such as stocks, bonds and debentures. There is also the added risk of derivative instruments. Here are some of the risks that investors must consider while investing in the fund:
- The trading prices of cryptocurrencies, especially Bitcoin have been highly volatile in the recent past. Investors stand a chance to gain or lose half their investment within days.
- Cryptocurrencies and blockchain networks are relatively newer and in the early stages of development. Owing to this, parties may not be willing to adopt digital assets which will restrict its growth and reduce their intrinsic value.
- Digital assets are solely based on the internet. A failure of the internet’s operability will affect the working of cryptocurrencies and impact the value of Bitcoin.
- Hackers or third parties may access Bitcoin’s network illegally which may hamper with its price.
- Emergence of competition from altcoins such as Ethereum, Ripple and Cardano may pose a threat to Bitcoin’s value in the future.
- Government’s attitude and laws against Bitcoin such as the infrastructure bill may impose additional taxes on capital gains. This will inevitably reduce Bitcoin’s price.
How will the value of shares be determined?
The value of the Trust’s shares will fluctuate on the following factors:
- The shares of the fund may vary in accordance with the change in supply of Bitcoin.
- Investors may see an appreciation in shares during halving phases of Bitcoin.
- Value of shares may rise if Bitcoin is adopted as a medium of exchange or store of value as done by El Salvador.
- Market sentiments such as inflation, booms and recessions have an impact on the value of shares.
- Unfavourable monetary and taxation policies imposed on cryptocurrencies by the government may reduce the value of the shares.
- Investors’ attitude towards bitcoin will affect the share price. The price varies if investors look at bitcoin as an asset or a volatile liability.
- The liquidity of the cash and derivative segment also plays a role. The higher the liquidity, the better will be the share price.
In conclusion, this exchange-traded fund comes with its own pros and cons. Investors must evaluate them and decide if it fits in their risk tolerability. In addition to the generic risks, the fund will take exposure to futures segment. Futures contracts are highly leveraged instruments which can lead to huge gains or huge losses.
Despite all the risks, Bitcoin is the best performing asset of the decade. If investors can stomach huge price drops and focus on the long-term goal, they will prosper. The strategy of ‘hodl’ must be implemented while investing in this fund.