Bitcoin investing in new ways. The debut of an exchange-traded fund (ETF) based on bitcoin futures. In October was a watershed moment in the cryptocurrency industry. ProShares Bitcoin Strategy ETF (BITO) had $1.26 billion in assets less than a month. After it launched, making it one of the most successful ETF debuts in history. Exactly two days following the launch of the ProShares fund. A second bitcoin futures fund, the Valkyrie Bitcoin Strategy ETF (BTF), became live.
The bitcoin futures exchange-traded funds (ETFs) are actively managed and employ tactics that are similar. A one-month forward futures contract, which is the closest-dated contract available. Is purchased by the managers and is related to bitcoin prices. Every month, they close or sell those contracts before they expire, and they buy new contracts. That are dated for the following month to replace the old ones.
According to Simeon Hyman, head of investment strategy at ProShares. It is not possible to invest in bitcoin’s spot price. The price at which an asset may be bought or sold for immediate delivery. In the traditional sense. “As a result, the futures market is an excellent way to gain exposure to bitcoin,” he argues. The method futures contracts are offered necessitates. The holding of a specific amount of cash in collateral for each transaction. As a result, these ETFs have a high concentration of Treasury securities and cash.
When both ProShares and Valkyrie looked at how their respective futures-based strategies. Would have performed in the past, in relation to the current price of bitcoin. They discovered a significant correlation (or beta) between the two — ranging from 0.87 to 0.99. Depending on the methodology used. When compared to the stock market. S&P 500 index funds typically have an alpha of 1.0 with the benchmark index.
Futures trading has its own set of risks
However, there are additional hazards associated with futures investing. That are unique to this type of investment. As a result of the way these instruments are valued. Changes in supply and demand for the underlying asset – in this example, bitcoin. Can have a significant impact on contract prices and the fund’s returns.
According to Steven McClurg, chief investment officer of Valkyrie Funds. Exchange-traded funds (ETFs) have limits. On the amount of a particular contract they can own. In some cases, funds with significant assets may obliged to purchase longer-dated futures contracts. Which can raise the level of volatility. ProShares’ BITO, for example, held contracts for both November and December at the beginning of November.
Even said, investing in bitcoin ETFs is a more convenient way. To obtain exposure to the cryptocurrency than directly purchasing it. You not require to open a digital currency exchange account. Or to remember any passwords in order to use this service. However, if you intend to invest, just a tiny amount of your portfolio should allocated to this type of futures ETF.
Additionally, there are alternative means of Bitcoin Investing and gaining exposure to bitcoin and blockchain. Which is the technology that powers the digital asset. Investing on companies that support the crypto economy, such as Canaan (CAN). A Chinese manufacturer of servers and microprocessors used in the creation of bitcoin. Is a focus of the Invesco Alerian Galaxy Crypto Economy ETF (SATO). Grayscale Bitcoin Trust (GBTC) takes a different method. In that every share in the trust backed by a bitcoin transaction of some kind.