What Is a Bitcoin Futures ETF? How Does It Differ From a Bitcoin Spot ETF?

The basic idea behind an ETF is to have an instrument whose value is pegged to the value of an underlying asset. This way, an investor does not have to deal with the actual asset directly. For instance, if an investor wants to invest in gold but would rather not deal with the asset physically, an ETF tracking it would be a great way to get the gold exposure otherwise. Several companies and organizations have attempted to launch Bitcoin ETFs, but only Bitcoin Futures ETFs have received approval from the U.S. The SEC expressed concerns about issues like market manipulation, liquidity, and custody of the underlying Bitcoin assets for Bitcoin Spot ETFs. Like many other assets, Bitcoin ETFs have several trading options, including futures and spot trading.

This cryptocurrency has opened up the doors to pseudonymous transactions, more efficient transfer of capital across borders, and created a new digital store of value. The fund invests in bitcoin futures and does not invest in bitcoin. “Because of contango the fund will actually be buying bitcoin at higher prices than the market,” D.A. “That means it’s not an efficient way to get exposure to [bitcoin],” the analyst said. Investors can choose to open a standard brokerage account or a retirement account, such as an IRA.

Bitcoin ETFs track the current price of Bitcoin, and should act in lockstep with Bitcoin’s price swings. Europe has had better luck, with London-based Jacobi Asset Management launching Europe’s first Bitcoin ETF on August 15, 2023. The author(s) held no positions in the securities discussed in the post at the original time of publication. Note that by attempting to earn money opposite to BTC’s price moves, the ProShares Short Bitcoin ETF (BITI) follows a slightly different strategy. The main arguments given by the SEC for these repeat rejections have been that the bitcoin market is too volatile, lacks sufficient surveillance and is too easily manipulated.

This is typically a money market account and can be funded easily online through ACH payment or electronic funds transfer. The ProShares Bitcoin Strategy ETF does not invest directly in Bitcoin. To achieve its strategy to track the price of Bitcoin, BITO holds Bitcoin futures. As of BITO’s debut on October 19, 2021, its holdings were nearly 100% Chicago Mercantile Exchange (CME) futures, with less than 1% in Treasury Bills. As an ETF, investors can trade shares of BITO on an exchange, in the same way that they can trade stocks.

Advantages of Bitcoin ETFs

If a retirement investor would like to get a modest amount of exposure to Bitcoin without opening an account at a crypto exchange or a Bitcoin IRA, owning shares of a Bitcoin ETF isn’t a terrible option. Here’s how it works in the case of the ProShares Bitcoin Strategy ETF (BITO). The fund buys positions in one-month CME Bitcoin futures contracts.

As far back as 2014, approximately five years after bitcoin (BTCUSD) first began trading at an exchange, the Winklevoss twins filed an ETF proposal for the cryptocurrency with the SEC. Cryptocurrency ETFs provide several benefits to investors, such as significantly lower cryptocurrency ownership costs and outsourcing of the steep learning curve required to trade cryptocurrencies. Spot prices are how derivative traders in the options and futures markets refer to asset prices for immediate delivery rather than future delivery. In simpler terms, the spot price is the current price of a commodity at the present moment, rather than guesses at what the price might be later. The first ETF launched in 1993, and they became popular as a way for retail investors to invest in a basket of assets at once.

Understanding Bitcoin ETFs

Conversely, when shorter-dated contracts cost more than the longer-dated ones, it is referred to as backwardation. Contango is a relatively natural state of most futures markets because investors tend to pay added costs for someone to “store” the underlying asset. The ProShares Bitcoin Strategy ETF offers exposure to the price of Bitcoin but does not invest directly in Bitcoin. The ETF takes positions in Bitcoin futures, which exposes the investment to rollover risk. Investors who are interested in BITO can purchase this ETF during market hours, similar to the purchase of a stock. The process of buying a Bitcoin ETF is no different than buying any other ETF, which are traded in the same way as stocks or bonds.

• It was widely believed that a bitcoin ETF would usher in a new wave of institutional investment into the crypto industry, bringing much-needed maturity and stability to the market.
• Investors who are interested in BITO can purchase this ETF during market hours, similar to the purchase of a stock.
• If the price of BTC falls, it takes funds from the pool to pay for the losses on futures contracts.
• This page includes historical dividend information for all Bitcoin listed on U.S. exchanges that are currently tracked by ETF Database.

An ETF (or exchange-traded fund) is a regulated financial instrument whose price tracks the value of underlying assets. For example, the price of a Gold ETF would track the value of the gold reserves that are represented within the ETF. Similarly, the price of an oil ETF, or a stock index ETF, or a crypto ETF would track the value of oil, the stock index, or the crypto assets, respectively. Just like stocks, an ETF can and is traded on regulated exchanges across the world. This then allows investors to trade ETFs through their brokerage accounts.

How Do Bitcoin Futures and Spot ETFs Differ?

This Bitcoin ETF seeks to gain exposure to the price of Bitcoin, without directly holding the cryptocurrency, by investing in Bitcoin futures. There’s most valuable companies no guarantee that the ETF will accurately track the price of Bitcoin. Another product from Bitwise is the company’s Crypto Industry Innovators ETF.

The Security and Exchange Commission (SEC) continues to evaluate whether it will ultimately approve ETFs that own Bitcoin directly. The New York-based VanEck investment fund has floated several bitcoin ETFs, mainly on European exchanges. Its XBTF fund is the third of its kind launched after October 2019.

Crypto ETFs in Canada

That means that any investors – retail or institutional – can buy and sell holdings in an ETF to other market participants over the stock exchange. The first concept for a Bitcoin ETF emerged shortly after investors and brokers noticed that bitcoin prices were trending upward and the cryptocurrency was becoming more popular. Most importantly, there appeared to be an opportunity to generate returns from buying and selling bitcoin.

In 2021 alone, the SEC recorded receipt of at least 12 applications. Less than two weeks after BlackRock’s filing, rival asset management giant Fidelity refiled paperwork for its Wise Origin Bitcoin Trust, also a spot bitcoin ETF. Originally filed in 2021, that bid was rejected by the SEC in 2022.

The history of applications in the US dates back to 2013 when the first such application was made by Gemini exchange founders Cameron and Tyler Winklevoss. After the Winklevoss brothers, several other investors have shown interest in partaking in the race to bring US investors the first crypto ETF. Here is a brief rundown of some of the institutions chasing the highly elusive SEC greenlight. To invest in an ETF, you will typically need to open a brokerage account with a reputable brokerage firm that offers access to the specific Bitcoin ETF you want to invest in. Ensure that your brokerage firm supports ETF trading and has a user-friendly platform. Start by researching the available Bitcoin ETFs and understanding their investment strategies, expense ratios, historical performance, and other relevant factors.

Acorns Checking Real-Time Round-Ups® invests small amounts of money from purchases made using an Acorns Checking account into the client’s Acorns Investment account. Requires both an active Acorns Checking account and an Acorns Investment account in good standing. Real-Time Round-Ups® investments accrue instantly for investment during the next https://investmentsanalysis.info/ trading window. Nonetheless, the success of a futures Bitcoin investor depends on the ability of the ETF to accurately track the price of Bitcoin, which isn’t always the case. On the positive side, a futures Bitcoin ETF streamlines the process of buying the ETF and allows investors to bet on whether the price of Bitcoin will go up or down.

“One of the main problems is it is a futures ETF and not a spot ETF,” said Morgen Rochard, a financial adviser who has an expertise in crypto, referring to the ProShares offering. “Crypto assets, including bitcoin, are highly speculative and people should invest only what they are willing to lose and only a limited percentage of their portfolio,” Luria said. Another place where you can buy and sell crypto is through PayPal. The company allows its users to trade other cryptocurrencies as well, including Ethereum and Litecoin. Even if the new ETF would be focused on Bitcoin, all cryptocurrencies could rise in popularity as a result.

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It may not generate huge profit growth for Block, but more transactions to process will definitely lead to more revenue growth for its business, and that could attract investors. A Bitcoin-focused ETF could be what helps give the stock a boost as Block is trading near its 52-week low. The ETF could attract many new crypto investors and lead not only to a surge in the value of cryptocurrencies but also more trading activity.

Also, crypto ETFs are regulated products as opposed to Bitcoin, which is a decentralized and pseudonymous digital currency. Many investors turn to Bitcoin ETFs because they provide a more accessible and regulated strategy to invest in digital assets. Traditional investors who lack digital knowledge or are hesitant to trade on leading cryptocurrency exchanges often prefer ETFs.