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October 18, 2021

This year, cryptocurrencies have been up. They've been down. But they never seem to be entirely out. What's happening: Hype around bitcoin is building again, with a financial tool that could boost public exposure to the digital currency poised to make its debut this week.

After plunging this spring, bitcoin is now trading above $60,000 — not far off the all-time high of more than $64,800 achieved in April. It's jumped more than 40% so far this month.

What is Driving the gains?
Investors are excited about the anticipated launch of the first bitcoin futures exchange-traded fund. The ProShares Bitcoin Strategy ETF will go live on Tuesday, according to the company. The fund will provide an entry point for investors who are interested in cryptocurrencies but don't want to deal with buying and selling the tokens themselves. The SEC signaled last week that it could finally approve such an instrument, which the crypto industry has long lobbied for.

"Before investing in a fund that holds bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits," the agency tweeted. Should it go ahead, the ETF could supercharge bitcoin's recent rally."We view the approval of a Bitcoin futures ETF as a positive step for the digital asset space," Isaac Boltansky, BTIG's director of policy research, said in a recent note to clients.

That doesn't mean regulators are completely ditching their distrust of cryptocurrencies. Boltansky noted that a futures ETF is different from an ETF that buys and sells bitcoin directly. On that front, the SEC appears to remain skeptical. And the rollout of stricter global rules continues to loom. Oversight bodies face more pressure to act as the pool of investment grows.

Need To Be Cautious
In a recent speech, Bank of England official Jon Cunliffe noted that the collapse of the $1.2 trillion markets in subprime mortgage-backed securities triggered the 2008 financial crisis. Crypto assets, meanwhile, have grown to $2.3 trillion. "$2.3 trillion, of course, needs to be seen in the context of the $250 trillion global financial system," Cunliffe said. "But as the financial crisis showed us, you don't have to account for a large proportion of the financial sector to trigger financial stability problems."

Some industry players see the writing on the wall. Coinbase published a proposal for regulating digital assets last Thursday. The company, which went public earlier this year, called for a designated US body to monitor crypto-assets. "Where new policy questions or challenges arise, the ability of a single dedicated regulatory body to respond in an efficient and timely manner benefits everyone," Coinbase said in a research paper.