Should you invest in a bitcoin-futures ETF rather than bitcoin or cryptocurrency stocks? Experts weigh in on the benefits of each option. With the introduction of ETFs linked to bitcoin futures this week. A new sort of exchange-traded fund has entered the public markets.
Bitcoin futures ETFs invest in contracts that are intended to bet on bitcoin’s future prices. They can be bought and traded just like stocks. And they also don’t require buyers to have a cryptocurrency exchange account or a crypto wallet.
On Tuesday, the ProShares Bitcoin Strategy ETF, which tracks CME bitcoin futures. Became live and immediately racked up $1 billion in assets under management. Valkyrie’s Bitcoin Strategy ETF began trading on Friday, while VanEck’s Bitcoin Strategy ETF is expected to begin trading next week.
“When you look at the market as a whole, bitcoin is… one of the best-performing assets in history,” Christopher Perkins. He is also the president of blockchain-focused investing firm CoinFund, he said this week to Business Insider. “Now, as I consider this asset class, if you’re an investment manager, you have to ask yourself. ‘What is the reputational risk of not being able to have exposure. To the best-performing asset in eight of the last ten years? “he added.
Insider spoke with three experts about the benefits and drawbacks of buying bitcoin-futures ETFs. Should you Invest in a bitcoin-futures ETF?. The digital coin itself, or stocks in firms with exposure to bitcoin as companies bring their products to market.
While the launch of the futures ETF was a watershed moment for the crypto market. Investors should be aware of certain key differences and complexity.
“This is not the ETF for mom-and-pop investors,” according to Naeem Aslam, chief market analyst at AvaTrade.
“You trade on margin in a futures market because you don’t have the actual commodity. You’re dealing with a synthetic price movement, “he explained. Investors should expect bitcoin futures prices to diverge from spot bitcoin pricing, he adds.
While bitcoin futures ETFs provide some bitcoin exposure. They have “deficiencies” and can be complex products for many retail investors, according to William Cai. He is also a partner at investment firm Wilshire Phoenix. Which has an application for a registered spot-bitcoin product under review at the Securities and Exchange Commission.
The Key Characteristic of Futures Markets
Contracts include expiration dates, which is a significant feature of futures markets, according to Cai. Who formerly worked at JPMorgan and traded commodities futures and other assets. A fund must roll contracts. Which means selling out the most recent future before it expires and then purchasing the next one.
“Trading expenses and the possibility for front-running concerns. Here, other market participants know you’re going to do it and can… Position themselves to take advantage of your actions, “Cai explained.
Bitcoin-futures ETFs, according to Perkins, who was previously the global co-head of futures and clearing. Foreign exchange prime brokerage at Citigroup, “were so easy out of the gate to obtain some of that synthetic exposure” to bitcoin. “It’s not perfect cash exposure, and there are costs associated with it,” he explained. “However, by cash settling the future, you don’t have to worry about custody because you’re not keeping the assets.”
According to Vanda Research, which studies retail investment activity. The ProShares product launch was virtually ignored by retail investors. The ‘contango trap,’ which refers to a market circumstance in which future contract prices are higher than spot prices. May be familiar to retail investors, according to Vanda.
Futures ETFs have additional peculiarities in addition to the intricacies of the underlying contracts. According to a Bloomberg story, there is strong demand for the ProShares Bitcoin Strategy ETF. It has already pushed the fund to its maximum number of contracts. The fund may diversify its assets into longer-dated contracts, but this would distance the fund from bitcoin’s spot price.
Bitcoin and Crypto-Linked Stocks
Former hedge fund trader Aslam said he may employ bitcoin-futures ETFs. In the options market for puts when the timing is right. Puts allow investors to sell underlying assets.
But Aslam advised typical investors to buy bitcoin directly. “Buying bitcoin through regulated exchanges, or exchanges within those regulatory borders, is the best way to go,” he said.
Many investors have chosen to invest in bitcoin through stocks, such as Marathon Digital Holdings, Riot Blockchain. And also MicroStrategy, managed by CEO and bitcoin bull Michael Saylor. Last month, it possessed about 114,042 bitcoins.
“I think investing in equities is second-hand,” Aslam stated. “Investors won’t get to appreciate the genuine flavor, momentum, or volatility of bitcoin,” he stated.
Buying crypto-linked stocks might increase individual company and market risks, according to Cai.
“I’d argue a proxy is corporations who spend heavily in bitcoin.” But proxies can be handy if you don’t have access to other options. “
“But I would advise you to know the risk that you’re taking,” he said. It varies greatly, “Cai stated.