Bitcoin-based ETF launch marks crypto's new headway in U.S. markets

Cryptocurrencies made new headway into mainstream U.S. markets today with the launch of a bitcoin-based ETF on the New York Stock Exchange.

Why it matters: The ProShares Bitcoin Strategy ETF, ticker symbol BITO, is the first-ever ETF that gives investors exposure to bitcoin — without needing those investors to actually hold the digital coin.

• This is a long-awaited day for crypto investors. Proponents say that using an ETF as a mechanism for bitcoin investing can introduce crypto to investors who had been nervous about buying it directly.

What it is: The ETF can be traded like a stock, is regulated by the SEC, and invests primarily in futures contracts that bet on the price of bitcoin.

What it's not: A fund that holds bitcoin.

How it works: BITO’s price will change based on the price of the futures contracts that it selects.

• The price of the futures contracts will change based on their bets on the price of bitcoin.

Backdrop: ETFs are viewed as one way to get more institutional investors on board with crypto more easily.

• Yes, but: Some analysts say bitcoin still holds high underlying risk.

What they're saying: “[W]hile we see potential for the technologies underpinning digital assets, we continue to view the coins themselves as speculative,” UBS researchers wrote in a note on Tuesday.

What to watch: About a dozen high-profile applications for bitcoin ETFs are waiting for SEC approval.

• SEC chair Gary Gensler has been in favor of futures-linked ETFs but still calls cryptocurrency the “Wild West.”

How BITO performed its first day: Shares jumped higher out of the gate, with $280 million worth of shares traded in the first 20 minutes, according to early reports and more than $850 million by the end of the day when it closed up 5%.

Our thought bubble, via CoinDesk’s Zack Seward: Today was definitely a big moment for the crypto industry, because it's been something that has been sought for a long time. At the same time, it's something that the industry sees as a tempered version of the dream, because it's based on futures prices, not real-time prices.