Home Bitcoin NewsCrypto Exchanges First Bitcoin ETF (BITO) Launched in the United States with Several Attached Caveats

First Bitcoin ETF (BITO) Launched in the United States with Several Attached Caveats

First Bitcoin ETF (BITO) Launched in the United States with Several Attached Caveats

The first Bitcoin ETF in the United States started trading October 19, 2021.  The ETF tracks Bitcoin Prices through futures contracts traded at the CME. Very soon, 3 other Bitcoin ETFs are expected in the trading markets.  Futures-based Bitcoin ETFs are coming with several attached caveats.

ProShares is an American provider of specialized exchange-traded products such as leveraged, inverse and volatility exchange-traded instruments.

Jodie Gunzberg, Coindesk Indexes managing director opined:  There are a variety of things that investors need to understand.  1.  Futures expire and roll over.  2. Fees.  3.  Concept of Contango.

Is futures based Bitcoin ETF very bad for the investor. They are getting contracts that expire.

Futures based ETF does not allow investors to buy Bitcoin directly. Futures ETFs tracks cash-settled futures contracts, not the price of the asset itself.  If they think that the price of the Bitcoin is going to rise in the future, then at a later date, the contracts are more expensive.  So, when investors go to sell the cheaper expiring contracts for the more expensive ones they lose money.  And, that is exactly, obviously the opposite of what you want to do. You want to buy low and sell high – not sell low and buy high.

When asked do you think these products are fatally flawed from the point of view of the individual investor? I do feel like it is fatally flawed and especially for Bitcoin, which you can hold the spot asset.  It is not like oil or live stock or something that is really difficult or impossible or something that is illegal to hold. It is very much like gold that is cheap and easy to store.  With Bitcoin you can easily get the spot asset, and unfortunately, the costs for Bitcoin futures is more like oil.  That is really expensive. So, it makes no sense at all.

Contango is a situation where the futures price of a commodity is higher than the expected spot price of the contract at maturity. Contango is just the description of the shape of the futures curve where nearby contracts are priced lower than the later dated ones.  In general, for something like commodities that incorporates a storage clause than a convenience seal, but that really does not exist for Bitcoin. So, the futures contract price is just really reflecting the future expectations of spot price.

Many feel that regulators cannot approve of a Bitcoin ETF itself.  However, Jodie Gunzberg states it is a learning curve thing.  I think that the approval of even Bitcoin based ETFs, even if it is futures, is opening the door for more products, and I think more products are a good thing. I just feel like many investors may not understand what is inside of their product.  So, when they buy something like a futures based Bitcoin ETF and Bitcoin is going up and they are losing money in their ETF, they are not going to know why.

 

 

 

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Maheen Hernandez

A finance graduate, Maheen Hernandez has been drawn to cryptocurrencies ever since Bitcoin first emerged in 2009. Nearly a decade later, Maheen is actively working to spread awareness about cryptocurrencies as well as their impact on the traditional currencies. Appreciate the work? Send a tip to: 0x75395Ea9a42d2742E8d0C798068DeF3590C5Faa5

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