(Bloomberg) – The havoc engulfing the cryptocurrency universe is rocking the world of exchange-traded funds.
Trading in the $600 million ProShares Bitcoin Strategy ETF (ticker BITO) was briefly halted on Wednesday after the fund plunged more than 6% within minutes, triggering the stock market’s downside volatility limit. The plunge came after a report that Binance is unlikely to follow through on its takeover of rival exchange FTX.com, according to people familiar with the matter.
The drama surrounding the crypto market over the past 72 hours has rocked ETFs designed to track the industry. On Tuesday, BITO posted its highest trading volume since its successful launch last year, after announcing the deal with Binance. Its sister fund – the $72 million ProShares Short Bitcoin Strategy ETF (BITI) – also saw record sales.
“While an ETF can help provide liquidity to a wide range of investments, for transactions to run smoothly, the underlying assets must be liquid,” Todd Rosenbluth, head of research at the data provider ETF and research consultant VettaFi. “Cryptocurrency futures are still an emerging high-volatility investment that can cause problems even through an ETF.”
BITO fell 8.8% on Wednesday. Bitcoin, the largest cryptocurrency, lost up to 10% to trade below $17,000, its lowest level since November 2020. The token had also fallen 10% the previous day. Altcoins also plunged, with Ether and XRP each dropping more than 10%. Solana lost almost 30%.
FTT, the utility token of the FTX exchange, crashed more than 40% on Wednesday, after falling more than 70% on Tuesday.
“What all of this indicates is that there will be more oversight, regulation and scrutiny by the SEC,” said Jane Edmondson, co-founder of EQM Indexes. “It certainly doesn’t help the case for a spot Bitcoin ETF being approved in the US anytime soon.”
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