Crypto ETFs send Bitcoin soaring but people are worried

[Bloomberg]( Follow Us [Get the newsletter]( What a week for crypto enthusiasts! The bad news is that CryptoEats, the “crypto-based UberEats alternative” that some people (including British reality TV star Joey Essex) were excited about, [has disappeared]( after its launch token sale. The good news is that two Bitcoin exchange-traded funds, the [ProShares Bitcoin Strategy]( fund and the [Valkyrie Bitcoin Strategy]( fund, started trading this week. All that excitement sent Bitcoin shooting right up to an all-time high just six months after a brutal 53% drop. So how do these Bitcoin ETFs work? Matt Levine does an admirable job of [explaining it](. In short: Basically if you slice open the Bitcoin ETF you will find a bunch of (U.S. dollar) cash equivalents. Plus a cash-settled bet with a futures exchange that the price of Bitcoin will go up. If Bitcoin goes up, the ETF will get more cash to plop into money-market securities. If Bitcoin goes down, the ETF will have to sell some of those securities to hand over some cash. If Bitcoin doubles, the ETF’s cash will more or less double; if Bitcoin goes to zero, the ETF’s cash will more or less disappear. The key with these funds is that they are futures-based rather than physical, meaning they don’t actually hold any Bitcoins at all. Instead, they’re basically paying someone else to store Bitcoins for them. That’s expensive, but it will protect them from forgetting the all-important passwords and losing all their customers’ Bitcoin, which, as Matt points out, would be hilarious but profoundly upsetting. A futures ETF is also probably the only option for the foreseeable future. The Securities and Exchange Commission is likely only to approve futures-based ones, as it’s concerned about regulatory oversight and people forgetting their passwords. Jared Dillian thinks this [might not be such a good idea](. They will have the same characteristics as a commodities fund, meaning investors will need to understand the terms “contango” and “backwardation.” ([Read his piece for an explanation.]() He thinks that there should be a physical Bitcoin ETF: “The gold market is unregulated and we have physical gold ETFs, so what gives?” Still, despite the SEC’s reluctance, the arrival of crypto ETFs in the U.S. sends a very different signal to the one sent [by the Chinese authorities](, who have issued a blanket ban on cryptocurrencies. Two years ago, China accounted for roughly 75% of all the computing power that went into mining Bitcoin. Now that number is down to zero, while the combined share of the U.S. and Canada is close to half as miners have flocked to places like Texas. The migration of power-hungry Bitcoin mining to the U.S. isn’t necessarily a good thing, especially during an energy crisis. Lionel Laurent [recalls]( that Colin Read, the former mayor of Plattsburgh, New York, told CNBC that welcoming Bitcoin miners during his tenure had generated “a handful” of jobs and a spike in electricity prices. The city was diverting 10% to 15% of its supply to miners, putting pressure on the grid and everyone else. Let’s take a step back again to reminisce about Bitcoin’s roller-coaster ride. John Authers notes that previously Bitcoin took years to recover fully from a bursting of the bubble, but this time it’s [back to a new record after a few months](. There are some arguments that Bitcoin could be viewed as an inflation hedge or a “risk on” asset, but neither of those are satisfactory explanations. [John explains](: “Trends in the Bitcoin price still have little reliable link to other critical variables in the economy, and much more to do with waves of sentiment as people try to work out the ultimate role [of cryptocurrencies] in the economy.” [Much of Bitcoin’s rise may just be driven by FOMO]( — i.e. “the desperation of those clambering onto the crypto ladder for a shot at keeping up with or beating their peers,” as Lionel puts it. A survey by the U.K. Financial Conduct Authority found that 76% of young people investing in high-risk products felt a sense of competitiveness with friends, family and other acquaintances, making the cryptocurrency look more like a machine for YOLO trades rather than a reliable store of value. FOMO also inspired the birth of Bitcoin itself — at least [if you believe Peter Thiel](. He recently told a crowd in Miami that the mythical cryptocurrency founder Satoshi Nakamoto must’ve gotten his big idea from a 2000 meeting involving E-gold, a digital currency that failed. “We were beginning the revolution against the central banks on the beach in Anguilla,” Thiel said. “Bitcoin was the answer to E-Gold.” Further Crypto Reading: - [Millennials Pull Crypto Out of the Shadows in India]( — Andy Mukherjee - [The Techno-Anarchists of Crypto Were Dead Wrong]( — Andy Mukherjee More Data From Bloomberg Opinion: - [Hedge Funds Are Thriving Amid Inflation-Wary Markets]( — Mark Gilbert - [China-Africa Ties Could Use a Few Million Shots in the Arm]( — Clara Ferreira Marques - [Los Angeles Turns Supply-Chain Mess Into Biggest Covid Rebound]( — Matthew A. Winkler This is the Theme of the Week edition of Bloomberg Opinion Today, a digest of our top commentary published every Sunday. Like Bloomberg Opinion Today? [Subscribe to Bloomberg All Access and get much, much more](. 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