How Have Banks and Investment Funds Been Affected by The Current Downturn?

Bitcoin, which is the largest cryptocurrency by market value, plunged 30% this week, as Elon Musk and proposals and regulatory issues in China contributed to panic selling, contributing to the market crash.

According to a recent report, bitcoin exchange-traded funds (ETFs) in Canada are on high alert.

Some Bitcoin ETFs affected by the Bitcoin Price Fall:

The Financial Times reported today that Bitcoin ETFs have released data on “market turmoil” to warn investors.

The newspaper added that two funds managed by "Horizon" company have told investors that they will not be able to fulfill buy and sell orders if market conditions do not improve.

This is because Horizon ETFs are investing in bitcoin futures contracts on the Chicago Mercantile Exchange, the latter having halted trading due to the selling.

As is well known, a forward contract is an agreement that obliges a trader to buy or sell an asset at a specified time, quantity and price.

If bitcoin futures prices remain at low levels, investors are unlikely to want to bet on and invest in the future in the hope that its price will rise.

With the bitcoin price collapse this week, futures investors have been turning away from it.

The Bitcoin Stock Exchange ETF is a popular investment product that allows people to buy stocks that represent a specific asset, such as gold, or in this case, Bitcoin.

Cryptocurrency ETFs are very popular because they have given those who know little (and perhaps don't want to know) about how Bitcoin works an opportunity to invest without having to hold the digital currency themselves.

However, there are no such products available yet to US investors, given that the SEC has so far rejected every Bitcoin ETF so far.

It is worth noting that although the market turmoil may seem worrisome, Horizon was the only company that reported a problem.

Is the effect general?

Other Canadian ETFs have been doing well so far

CI Galaxy, for example, said in a statement that the Bitcoin ETF has not had any problems because its product does not use derivatives but rather invests directly in the cryptocurrency.

The problems with Horizon ETFs come after Canada's central bank warned that bitcoin and other high-risk digital assets are in its annual review of vulnerabilities and risks in the financial sector.

The bank may also have a role in Canada, and the crash this week may have alarmed traditional investors who believed they were entering a gold rush (although Bitcoin is still more than 280% higher than last year).

The Financial Times quoted Horizon CEO Steve Hawkins as saying that he hopes to open the eyes of the retail investor community to understand the volatility of this asset class.

Although not every ETF market is pessimistic, 3iQ's CEO Fred Bay commented in a note to investors that over a 3-year period we have seen meaningful correction periods and that reversing recent highs is perfectly normal and somewhat healthy.

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By @natalia-irish

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