Bitcoin cynics can now actually bet on its downfall

Over the weekend, Bitcoin's price fell below US$20,000 for the first time since 2020. PHOTO: REUTERS

WASHINGTON (NYTIMES) - As cryptocurrency holders watch the market tank, skeptics could begin betting against Bitcoin on the New York Stock Exchange on Tuesday (June 21).

The United States Securities and Exchange Commission (SEC) late last week approved an exchange-traded fund (ETF), from investment manager ProShares, that rises in value when the price of Bitcoin plummets. Over the weekend, Bitcoin's price fell below US$20,000 for the first time since 2020, and it even slipped below US$18,000 at one point before climbing back above US$21,000 on Tuesday.

The new fund, the ProShares Short Bitcoin Strategy ETF, does not directly buy or sell Bitcoin. Instead, it places wagers on futures contracts on the Chicago Mercantile Exchange that pay off when the price of Bitcoin dips, the DealBook newsletter reports.

Last autumn, the company also started the first Bitcoin futures ETF, which bets that prices will rise, and ProShares chief executive Michael Sapir said the timing felt right for this more pessimistic venture.

"There probably is no better environment for it," he said.

The price of Bitcoin has plunged 70 per cent from its high in November last year.

And the total value of all cryptocurrencies has fallen to about US$1 trillion (S$1.39 trillion), from about US$3 trillion in November.

Much of the recent selling has been driven by collapses in so-called stablecoins - cryptocurrencies that were supposed to maintain a set value. But if those collapses do not lead to wider problems in the crypto market, Bitcoin's price could rebound.

Bitcoin enthusiasts have long wanted to offer a fund that buys and holds the crypto itself, with no success so far. SEC chair Gary Gensler contends that the barely regulated, always-on global Bitcoin market is too wild and unreliable, distinguishing it from futures funds based on the Chicago exchange, which is highly regulated and serves registered professional traders.

Notably, Grayscale Bitcoin Trust - a crypto fund for accredited investors, currently trading at a deep discount - ran an ad and letter campaign to bolster its application to convert to an ETF this year, and Grayscale has threatened litigation if it is denied. A decision is expected by early next month.

But with crypto markets now showing all the vulnerabilities regulators most feared, a former top SEC official said that those crypto fund dreams probably will not come true any time soon.

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