Correspondence 0001683863-23-006331 from PROSHARES TRUST (CIK 0001174610)
PROSHARES TRUST (CIK 0001174610)
Date: Sept. 25, 2023 · CIK: 0001174610 · Accession: 0001683863-23-006331
AI Filing Summary & Sentiment
File numbers found in text: 333-89822, 811-21114
Letter
VIA EDGAR CORRESPONDENCE 100 F Street, N.E. Washington, DC 20549 ProShares Trust (the "Trust") (File Nos. 811-21114 and 333-89822)
Re:
Dear Mr. Rosenberg:
On August 1, 2023, the Trust filed with the Securities and Exchange Commission (the "Commission") Post-Effective Amendment Nos. 271/272 under the Securities Act of 1933, as amended (the "1933 Act") and Amendment Nos. 280/281 under the Investment Company Act of 1940, as amended (the "1940 Act") to the Trust's registration statement (the "Registration Statement"). These two amendments were filed for the purpose of adding two new exchange-traded funds ("ETFs") to the Trust – the ProShares Ether Strategy ETF, and the ProShares Short Ether Strategy ETF. On August 2, 2023, the Trust filed with the Commission Post Effective Amendment No. 273 under the 1933 Act and Amendment No. 282 under the 1940 Act to the Registration Statement. This amendment was filed for the purpose of adding one new ETF to the Trust – the ProShares Bitcoin & Ether Strategy ETF. Finally, on August 3, 2023, the Trust filed with the Commission Post Effective Amendment No. 274 under the 1933 Act and Amendment No. 283 under the 1940 Act to the Registration Statement. This amendment was filed for the purpose of adding one new ETF to the Trust – the ProShares Bitcoin & Ether Equal Weight Strategy ETF (collectively, the "Amendments" and each a "Fund", and collectively, the "Funds").
We received comments from you (the "Staff") relating to the Amendments on August 31, 2023. For your convenience and reference, we have summarized the comments in this letter and provided the Trust's response below each such comment. The Trust will file post-effective amendments to the Registration Statement pursuant to Rule 485(b) under the 1933 Act (the "B-Filings"). The B-Filings are being made for the purpose of incorporating modifications to each Fund's prospectus and statement of additional information in response to your comments on the Amendment as described in this letter and to make other minor and conforming changes.
Operation of the Ether Futures Market and Bitcoin Futures Market
1.Comment: Please supplementally confirm whether the Fund has engaged one or more Futures Commission Merchant(s) ("FCM(s)"). Please identify such FCM(s) in your response.
Response: The Funds expect to have five to seven FCMs lined up for trading shortly after
launch. The names of these FCMs will be provided under separate cover.
2.Comment: Please supplementally inform us of any discussions with potential authorized participants ("APs") or market makers for the Fund and supplementally address the following:
(a)confirm the number of APs or other firms that have expressed legitimate interest and/or intent to act as an AP for the Fund (including information about the identities of such potential APs);
(b)discuss the ability of APs and market makers to arbitrage the Fund's holdings in a manner that is expected to keep the Fund's market price in line with its net asset value ("NAV");
(c)discuss what instruments the APs will use to arbitrage and whether there will be any impact from the inability of broker-dealers to custody ether or bitcoin; and
(d)discuss whether there any unique considerations or rules related to the national securities exchange on which the Fund plans to list its securities that will impact the Fund's ability to pursue its investment strategy, interact with APs, or otherwise impact the Fund's operations.
Response:
(a)Based on initial discussions, as of the date of this response, seven APs have expressed intentions to transact in the Funds. The names of those APs will be provided under separate cover.
(b)The Advisor expects that APs and market makers will be able to engage in efficient arbitrage activity in a manner that is expected to keep each Fund's market price in line with its NAV. Both bitcoin and ether futures markets are liquid with readily available intra-day pricing. Creation and redemption of ether-based futures contracts will operate in essentially the same manner as the creation and redemption mechanism for other futures-based ETFs including the ProShares Bitcoin Strategy ETF and ProShares Short Bitcoin Strategy ETF, which have traded in line with their NAVs since inception. From the inception of these Funds through August 31, 2023, the average end of day premium / discount was 34 basis points in ProShares Bitcoin Strategy ETF and 7 basis points in ProShares Short Bitcoin Strategy ETF. The Trust expects the arbitrage mechanism for Funds investing in ether futures will operate in essentially the same manner as funds investing in bitcoin futures and therefore expects similar results.
(c)Based on discussions with APs and market makers, ProShare Advisors LLC (the "Advisor") understands that the primary instrument used by such firms to hedge Fund exposure will be CME (Chicago Mercantile Exchange) bitcoin and/or ether futures contracts. The Advisor understands the consensus among these firms is that these contracts are readily tradeable and that there is sufficient liquidity to support the Funds and act as an appropriate hedge. These contracts trade nearly 24 hours a day with price limit protections and velocity pauses to help ensure an orderly market and price discovery. The Advisor further understands that the liquidity and protections offered by a CME-listed instrument are additional reasons why the CME futures contracts are likely to be the primary hedging instrument for APs and market makers.
The Advisor understands that secondary hedging instruments will likely include spot bitcoin, spot ether, pooled investment vehicles (such as the Grayscale Bitcoin Trust) and Canadian ETFs that offer exposure to spot bitcoin or spot ether and that several APs and market makers are active participants in the spot bitcoin or spot ether markets. Many of these firms, or related entities, have traded spot bitcoin alongside CME bitcoin futures since the launch of CME bitcoin futures in 2017 and have traded spot ether alongside CME ether futures since the launch of CME ether futures in February 2021. This potential arbitrage between CME bitcoin and ether futures and spot bitcoin and ether, as applicable, is a key component of the broader bitcoin and ether markets and the market for bitcoin futures ETFs and ether futures ETFs.
While some broker dealers may not be able to hold spot bitcoin or ether, the Advisor expects that the APs and market makers that are going to be most active participating in and quoting the Funds will be able to hold all of the instruments mentioned above. The Advisor does not expect that there will be any impact from the inability of broker- dealers to custody ether or bitcoin.
(d) The Advisor does not believe exchange rules would limit a Fund's ability to execute its strategy, limit its ability to interact with APs or otherwise impact Fund operations.
3.Comment: Please supplementally discuss whether the Fund anticipates any capacity constraints in the ether futures market or bitcoin futures market that would limit the size of the Fund's exposure to ether futures or bitcoin futures. Also, how would the current number of registrants looking to launch similar funds impact the ether futures market or bitcoin futures market? Explain how the Fund will monitor market capacity as new participants enter the market.
Response: The Advisor does not expect that the current level of existing CME bitcoin futures and CME ether futures volumes and open interest would create capacity constraints for the Funds or otherwise limit the Funds' ability (or the ability of similar products) to obtain the desired exposure to CME bitcoin or ether futures contracts, or that the Funds' futures transactions (and transactions by similar products) are likely to have a material impact on the price of such contracts.
The current volume and open interest in CME bitcoin futures contracts has increased significantly since such contracts began trading. For example, over the six months ending July 31, 2023, the average daily volume, in front-month CME bitcoin futures contracts averaged $1.226 billion and notional open interest averaged $1.351 billion.
Much like the market for CME bitcoin futures contracts, the market for CME ether futures contracts, as measured by current volume and open interest, has increased significantly since such contracts began trading. For example, over the six months ending July 31, 2023, the average daily notional volume, by month, in the front-month CME ether futures contracts averaged $400 million and notional open interest averaged $280 million.
The Advisor believes the current level of futures volumes and open interest for both bitcoin futures and ether futures indicate a market of sufficient size and liquidity and will not create capacity constraints or exposure limits for, or limit the ability of, the Funds (or similar products) to obtain, each Fund's desired exposure. For the same reasons, the Advisor does not believe the Funds' futures transactions (and transactions by similar products) are likely to have a material impact on the price of such contracts. Importantly, unlike the supply of equity securities (which typically is fixed by the number of shares issued) additional futures contracts may be created whenever there is sufficient interest in such contracts. The Advisor expects the current number of registrants looking to launch
similar funds is likely to have a corresponding positive impact on the bitcoin futures market and ether futures market, as applicable. To the extent there is demand for the shares of such funds, the purchase of fund shares should increase both open interest and contract volume.
The charts below illustrate this point. The first chart shows the growth in volume and open interest of CME bitcoin futures contracts and that, in general, open interest has moved with contract volume. The second chart shows similar data for the growth in volume and open interest of CME ether futures contracts since the contracts commenced trading on the CME. Like the bitcoin futures contracts, the open interest for CME ether futures contracts generally has moved with contract volume. The third and fourth charts provide a similar comparison based on notional value.
Front-Month Bitcoin Futures - Average Daily Volume & Open Interest
Monthly, Mar. 2021 - Jul. 2023
13,000
12,000
Contract Volume
11,000
Contract Open Interest
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
9,000
8,000
Front-Month Ether Futures - Average Daily Volume & Open Interest
Monthly, Mar. 2021 - Jul. 2023
Contract Volume
Contract Open Interest
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Millions
Front-Month Bitcoin Futures - Average Daily Notional Volume & Open Interest
Front-Month, Mar. 2021 - Jul. 2023
$3,000
$2,750
Notional Volume
$2,500
Notional Open Interest
$2,250
$2,000
$1,750
$1,500
$1,250
$1,000
$750
$500
$250
$0
Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23
Millions
Front-Month Ether Futures - Average Daily Notional Volume & Open Interest
Front-Month, Mar. 2021 - Jul. 2023
$1,200
$1,100
Notional Volume
$1,000
Notional Open Interest
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Mar-21
Jun-21
Sep-21
Dec-21 Mar-22
Jun-22
Sep-22
Dec-22 Mar-23
Jun-23
The charts that follow show (i) the high degree of correlation between the price of front month CME bitcoin futures contracts and the spot price of bitcoin (as measured by the Bloomberg Galaxy Bitcoin Index) and (ii) the price of the front-month CME ether futures contract and the price of spot ether (as measured by the Bloomberg Galaxy Ethereum Index price). The charts show the correlation between the returns of the respective contracts and settlement price series over the maximum data history available for each contract. As the charts illustrate, the significant increases in contract volume illustrated above have not resulted in significant deviations between the price of the front- month futures contracts and the spot prices, which were highly correlated during the measurement period.
Front-Month Bitcoin Futures vs. Spot Bitcoin - Correlation
Rolling 1-Month, Mar. 10, 2021 - Jul. 31, 2023
1.000
0.995
0.990
0.985
0.980
0.975
0.970
0.965
0.960
Rolling 1-Month
0.9648
0.955
Overall Average = 0.9927
0.950
Jun-21
Sep-21 Dec-21 Mar-22
Jun-22
Sep-22 Dec-22
Mar-23
Mar-21
1-Month Correlation Minimum = 0.9648 (Dec. 13, 2022)
Front-Month Ether Futures vs. Spot Ether - Correlation
Rolling 1-Month, Mar. 10, 2021 - Jul. 31 2023
1.000
0.995
0.990
0.985
0.980
0.975
0.970
0.965
0.960
Rolling 1-Month
0.955
Overall Average = 0.9938
0.950
Mar-21
Jun-21
Sep-21 Dec-21 Mar-22
Jun-22
Sep-22 Dec-22
Mar-23
1-Month Correlation Minimum – 0.9790 (June 15, 2023)
Jun-23
0.9790
Jun-23
The lack of a material impact on price is further supported by an analysis of the bid-ask spreads on both front-month CME bitcoin futures contracts and front-month CME ether futures contracts. If demand had a material impact on price, we would expect to see widening bid-ask spreads as demand increases. Instead, as illustrated below, spreads clustered around the mean throughout the period.
The Advisor does not believe the number of registrants looking to launch similar funds is likely to have a negative impact on the ether futures market or the bitcoin futures market. As the assets of the Funds and similar products grow, the Funds and such products will need to enter into additional CME ether and/or bitcoin futures contracts, as applicable, to achieve their desired exposures. As illustrated by the data provided above, the Advisor expects the market will meet this demand with a corresponding increase in open interest and trading volumes without a detrimental impact on the prices of such contracts.
In addition, as with other types of futures contracts and securities tracking a benchmark or index, there is the always the possibility that (i) funds and other investors seeking exposure to such benchmark or index may utilize similar, or even identical, investment strategies or (ii) funds and other investors seeking to change their exposure or "roll" their futures positions will seek to do so within the same general period of time . However, since the Funds (other than the ProShares Short
Ether Strategy ETF) would be actively managed and would have the flexibility as to when and how to achieve their respective investment objectives and obtain (or liquidate) their respective investment exposure, the Advisor believes these risks are mitigated with respect to the Funds. Additionally, as discussed above, the Advisor expects the market will meet this demand with a corresponding increase in open interest and trading volumes without a detrimental impact on the prices of such contracts.
The Advisor monitors market capacity and liquidity, as well as counterparty exposure and capacity, on a daily basis. Importantly, unlike the supply of equity securities (which typically is fixed by the number of shares issued) additional futures contracts may be created whenever there is sufficient interest in such contracts. The Advisor expects the current number of registrants looking to launch
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CORRESP
1
filename1.htm
Corresp
September 25, 2023
VIA EDGAR CORRESPONDENCE
Michael Rosenberg
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re:
ProShares Trust (the "Trust") (File Nos. 811-21114 and 333-89822)
Dear Mr. Rosenberg:
On August 1, 2023, the Trust filed with the Securities and Exchange Commission (the "Commission") Post-Effective Amendment Nos. 271/272 under the Securities Act of 1933, as amended (the "1933 Act") and Amendment Nos. 280/281 under the Investment Company Act of 1940, as amended (the "1940 Act") to the Trust's registration statement (the "Registration Statement"). These two amendments were filed for the purpose of adding two new exchange-traded funds ("ETFs") to the Trust – the ProShares Ether Strategy ETF, and the ProShares Short Ether Strategy ETF. On August 2, 2023, the Trust filed with the Commission Post Effective Amendment No. 273 under the 1933 Act and Amendment No. 282 under the 1940 Act to the Registration Statement. This amendment was filed for the purpose of adding one new ETF to the Trust – the ProShares Bitcoin & Ether Strategy ETF. Finally, on August 3, 2023, the Trust filed with the Commission Post Effective Amendment No. 274 under the 1933 Act and Amendment No. 283 under the 1940 Act to the Registration Statement. This amendment was filed for the purpose of adding one new ETF to the Trust – the ProShares Bitcoin & Ether Equal Weight Strategy ETF (collectively, the "Amendments" and each a "Fund", and collectively, the "Funds").
We received comments from you (the "Staff") relating to the Amendments on August 31, 2023. For your convenience and reference, we have summarized the comments in this letter and provided the Trust's response below each such comment. The Trust will file post-effective amendments to the Registration Statement pursuant to Rule 485(b) under the 1933 Act (the "B-Filings"). The B-Filings are being made for the purpose of incorporating modifications to each Fund's prospectus and statement of additional information in response to your comments on the Amendment as described in this letter and to make other minor and conforming changes.
Operation of the Ether Futures Market and Bitcoin Futures Market
1.Comment: Please supplementally confirm whether the Fund has engaged one or more Futures Commission Merchant(s) ("FCM(s)"). Please identify such FCM(s) in your response.
Response: The Funds expect to have five to seven FCMs lined up for trading shortly after
1
launch. The names of these FCMs will be provided under separate cover.
2.Comment: Please supplementally inform us of any discussions with potential authorized participants ("APs") or market makers for the Fund and supplementally address the following:
(a)confirm the number of APs or other firms that have expressed legitimate interest and/or intent to act as an AP for the Fund (including information about the identities of such potential APs);
(b)discuss the ability of APs and market makers to arbitrage the Fund's holdings in a manner that is expected to keep the Fund's market price in line with its net asset value ("NAV");
(c)discuss what instruments the APs will use to arbitrage and whether there will be any impact from the inability of broker-dealers to custody ether or bitcoin; and
(d)discuss whether there any unique considerations or rules related to the national securities exchange on which the Fund plans to list its securities that will impact the Fund's ability to pursue its investment strategy, interact with APs, or otherwise impact the Fund's operations.
Response:
(a)Based on initial discussions, as of the date of this response, seven APs have expressed intentions to transact in the Funds. The names of those APs will be provided under separate cover.
(b)The Advisor expects that APs and market makers will be able to engage in efficient arbitrage activity in a manner that is expected to keep each Fund's market price in line with its NAV. Both bitcoin and ether futures markets are liquid with readily available intra-day pricing. Creation and redemption of ether-based futures contracts will operate in essentially the same manner as the creation and redemption mechanism for other futures-based ETFs including the ProShares Bitcoin Strategy ETF and ProShares Short Bitcoin Strategy ETF, which have traded in line with their NAVs since inception. From the inception of these Funds through August 31, 2023, the average end of day premium / discount was 34 basis points in ProShares Bitcoin Strategy ETF and 7 basis points in ProShares Short Bitcoin Strategy ETF. The Trust expects the arbitrage mechanism for Funds investing in ether futures will operate in essentially the same manner as funds investing in bitcoin futures and therefore expects similar results.
(c)Based on discussions with APs and market makers, ProShare Advisors LLC (the "Advisor") understands that the primary instrument used by such firms to hedge Fund exposure will be CME (Chicago Mercantile Exchange) bitcoin and/or ether futures contracts. The Advisor understands the consensus among these firms is that these contracts are readily tradeable and that there is sufficient liquidity to support the Funds and act as an appropriate hedge. These contracts trade nearly 24 hours a day with price limit protections and velocity pauses to help ensure an orderly market and price discovery. The Advisor further understands that the liquidity and protections offered by a CME-listed instrument are additional reasons why the CME futures contracts are likely to be the primary hedging instrument for APs and market makers.
2
The Advisor understands that secondary hedging instruments will likely include spot bitcoin, spot ether, pooled investment vehicles (such as the Grayscale Bitcoin Trust) and Canadian ETFs that offer exposure to spot bitcoin or spot ether and that several APs and market makers are active participants in the spot bitcoin or spot ether markets. Many of these firms, or related entities, have traded spot bitcoin alongside CME bitcoin futures since the launch of CME bitcoin futures in 2017 and have traded spot ether alongside CME ether futures since the launch of CME ether futures in February 2021. This potential arbitrage between CME bitcoin and ether futures and spot bitcoin and ether, as applicable, is a key component of the broader bitcoin and ether markets and the market for bitcoin futures ETFs and ether futures ETFs.
While some broker dealers may not be able to hold spot bitcoin or ether, the Advisor expects that the APs and market makers that are going to be most active participating in and quoting the Funds will be able to hold all of the instruments mentioned above. The Advisor does not expect that there will be any impact from the inability of broker- dealers to custody ether or bitcoin.
(d) The Advisor does not believe exchange rules would limit a Fund's ability to execute its strategy, limit its ability to interact with APs or otherwise impact Fund operations.
3.Comment: Please supplementally discuss whether the Fund anticipates any capacity constraints in the ether futures market or bitcoin futures market that would limit the size of the Fund's exposure to ether futures or bitcoin futures. Also, how would the current number of registrants looking to launch similar funds impact the ether futures market or bitcoin futures market? Explain how the Fund will monitor market capacity as new participants enter the market.
Response: The Advisor does not expect that the current level of existing CME bitcoin futures and CME ether futures volumes and open interest would create capacity constraints for the Funds or otherwise limit the Funds' ability (or the ability of similar products) to obtain the desired exposure to CME bitcoin or ether futures contracts, or that the Funds' futures transactions (and transactions by similar products) are likely to have a material impact on the price of such contracts.
The current volume and open interest in CME bitcoin futures contracts has increased significantly since such contracts began trading. For example, over the six months ending July 31, 2023, the average daily volume, in front-month CME bitcoin futures contracts averaged $1.226 billion and notional open interest averaged $1.351 billion.
Much like the market for CME bitcoin futures contracts, the market for CME ether futures contracts, as measured by current volume and open interest, has increased significantly since such contracts began trading. For example, over the six months ending July 31, 2023, the average daily notional volume, by month, in the front-month CME ether futures contracts averaged $400 million and notional open interest averaged $280 million.
The Advisor believes the current level of futures volumes and open interest for both bitcoin futures and ether futures indicate a market of sufficient size and liquidity and will not create capacity constraints or exposure limits for, or limit the ability of, the Funds (or similar products) to obtain, each Fund's desired exposure. For the same reasons, the Advisor does not believe the Funds' futures transactions (and transactions by similar products) are likely to have a material impact on the price of such contracts. Importantly, unlike the supply of equity securities (which typically is fixed by the number of shares issued) additional futures contracts may be created whenever there is sufficient interest in such contracts. The Advisor expects the current number of registrants looking to launch
3
similar funds is likely to have a corresponding positive impact on the bitcoin futures market and ether futures market, as applicable. To the extent there is demand for the shares of such funds, the purchase of fund shares should increase both open interest and contract volume.
The charts below illustrate this point. The first chart shows the growth in volume and open interest of CME bitcoin futures contracts and that, in general, open interest has moved with contract volume. The second chart shows similar data for the growth in volume and open interest of CME ether futures contracts since the contracts commenced trading on the CME. Like the bitcoin futures contracts, the open interest for CME ether futures contracts generally has moved with contract volume. The third and fourth charts provide a similar comparison based on notional value.
Front-Month Bitcoin Futures - Average Daily Volume & Open Interest
Monthly, Mar. 2021 - Jul. 2023
13,000
12,000
Contract Volume
11,000
Contract Open Interest
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
9,000
8,000
Front-Month Ether Futures - Average Daily Volume & Open Interest
Monthly, Mar. 2021 - Jul. 2023
Contract Volume
Contract Open Interest
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
4
Millions
Front-Month Bitcoin Futures - Average Daily Notional Volume & Open Interest
Front-Month, Mar. 2021 - Jul. 2023
$3,000
$2,750
Notional Volume
$2,500
Notional Open Interest
$2,250
$2,000
$1,750
$1,500
$1,250
$1,000
$750
$500
$250
$0
Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23
Millions
Front-Month Ether Futures - Average Daily Notional Volume & Open Interest
Front-Month, Mar. 2021 - Jul. 2023
$1,200
$1,100
Notional Volume
$1,000
Notional Open Interest
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Mar-21
Jun-21
Sep-21
Dec-21 Mar-22
Jun-22
Sep-22
Dec-22 Mar-23
Jun-23
The charts that follow show (i) the high degree of correlation between the price of front month CME bitcoin futures contracts and the spot price of bitcoin (as measured by the Bloomberg Galaxy Bitcoin Index) and (ii) the price of the front-month CME ether futures contract and the price of spot ether (as measured by the Bloomberg Galaxy Ethereum Index price). The charts show the correlation between the returns of the respective contracts and settlement price series over the maximum data history available for each contract. As the charts illustrate, the significant increases in contract volume illustrated above have not resulted in significant deviations between the price of the front- month futures contracts and the spot prices, which were highly correlated during the measurement period.
5
Front-Month Bitcoin Futures vs. Spot Bitcoin - Correlation
Rolling 1-Month, Mar. 10, 2021 - Jul. 31, 2023
1.000
0.995
0.990
0.985
0.980
0.975
0.970
0.965
0.960
Rolling 1-Month
0.9648
0.955
Overall Average = 0.9927
0.950
Jun-21
Sep-21 Dec-21 Mar-22
Jun-22
Sep-22 Dec-22
Mar-23
Mar-21
1-Month Correlation Minimum = 0.9648 (Dec. 13, 2022)
Front-Month Ether Futures vs. Spot Ether - Correlation
Rolling 1-Month, Mar. 10, 2021 - Jul. 31 2023
1.000
0.995
0.990
0.985
0.980
0.975
0.970
0.965
0.960
Rolling 1-Month
0.955
Overall Average = 0.9938
0.950
Mar-21
Jun-21
Sep-21 Dec-21 Mar-22
Jun-22
Sep-22 Dec-22
Mar-23
1-Month Correlation Minimum – 0.9790 (June 15, 2023)
Jun-23
0.9790
Jun-23
The lack of a material impact on price is further supported by an analysis of the bid-ask spreads on both front-month CME bitcoin futures contracts and front-month CME ether futures contracts. If demand had a material impact on price, we would expect to see widening bid-ask spreads as demand increases. Instead, as illustrated below, spreads clustered around the mean throughout the period.
6
The Advisor does not believe the number of registrants looking to launch similar funds is likely to have a negative impact on the ether futures market or the bitcoin futures market. As the assets of the Funds and similar products grow, the Funds and such products will need to enter into additional CME ether and/or bitcoin futures contracts, as applicable, to achieve their desired exposures. As illustrated by the data provided above, the Advisor expects the market will meet this demand with a corresponding increase in open interest and trading volumes without a detrimental impact on the prices of such contracts.
In addition, as with other types of futures contracts and securities tracking a benchmark or index, there is the always the possibility that (i) funds and other investors seeking exposure to such benchmark or index may utilize similar, or even identical, investment strategies or (ii) funds and other investors seeking to change their exposure or "roll" their futures positions will seek to do so within the same general period of time . However, since the Funds (other than the ProShares Short
7
Ether Strategy ETF) would be actively managed and would have the flexibility as to when and how to achieve their respective investment objectives and obtain (or liquidate) their respective investment exposure, the Advisor believes these risks are mitigated with respect to the Funds. Additionally, as discussed above, the Advisor expects the market will meet this demand with a corresponding increase in open interest and trading volumes without a detrimental impact on the prices of such contracts.
The Advisor monitors market capacity and liquidity, as well as counterparty exposure and capacity, on a daily basis. Importantly, unlike the supply of equity securities (which typically is fixed by the number of shares issued) additional futures contracts may be created whenever there is sufficient interest in such contracts. The Advisor expects the current number of registrants looking to launch