The havoc engulfing the cryptocurrency universe is rattling 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% in a matter of minutes, triggering the exchange’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 jolted ETFs designed to track the industry. On Tuesday, BITO posted its highest trading volume since its blockbuster launch last year, after news of the Binance deal broke. Its twin fund -- the $72 million ProShares Short Bitcoin Strategy ETF (BITI) -- also saw unprecedented turnover.
“While an ETF can help provide liquidity to a wide range of investments, for trading to occur properly the underlying assets need to be liquid,” Todd Rosenbluth, head of research at ETF data provider and research consultant VettaFi. “Cryptocurrency futures are still an emerging investment with high volatility that can cause challenges even through an ETF.”
BITO fell as much as 8.8% on Wednesday. Bitcoin, the largest cryptocurrency, lost as much as 10% to trade below $17,000, its lowest level since November 2020. The token had dropped 10% the day prior as well. Altcoins also plunged, with Ether and XRP each falling more than 10%. Solana lost close to 30%.
FTT, the utility token of the FTX exchange, collapsed by more than 40% on Wednesday, following a more-than-70% tumble on Tuesday.
“What all of this is pointing to is that there will be more SEC oversight, regulation and scrutiny,” said Jane Edmondson, co-founder of EQM Indexes. “It certainly does not help the case for approval of a spot Bitcoin ETF in the US anytime soon.”