Finance

Is The New Futures-Based Bitcoin ETF Really An ‘Inferior’ Product?

Tomorrow, the first bitcoin exchange-traded fund (ETF) in the U.S. is scheduled to go live on The New York Stock Exchange.

The ProShares Bitcoin Strategy ETF, which will trade under the ticker symbol BITO, will invest “primarily” in bitcoin futures, according to a statement announcing the planned launch.

This new fund could provide investors with significant opportunity to gain exposure to bitcoin without using a digital currency exchange like Coinbase or Kraken.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

However, not everyone has provided an optimistic take on this development, with a recent MarketWatch article, penned by markets editor Mark DeCambre, emphasizing the concerns voiced by registered investment advisers (RIAs).

The piece quoted Ben Cruikshank, head of investing platform Flourish, which is owned by MassMutual and works with RIAs who have a combined total of more than $1 trillion in assets under management.

“The firms we are speaking to are extremely skeptical” of a futures-based bitcoin ETF, he stated.

“The feedback that I’m getting is a derivative is a less efficient form of ownership,” Cruikshank noted.

Further, RIAs have been noting that the bitcoin ETF scheduled to go live tomorrow is a “complicated futures product,” which is less straightforward than opening an account at Coinbase.

“It’s a hard thing to justify an inferior futures product,” said Cruikshank. “That is less my feedback and more what firms are telling me.”

Several analysts weighed in on these concerns, offering their perspective.

“Cruikshank is right on the money,” said Ben Armstrong, founder of BitBoy Crypto.

“Spot Bitcoin that has to be settled in Bitcoin is far more bullish than futures settled on paper.”

“But don’t let that take the shine off a futures ETF as a whole,” he stated.

“This is a paradigm shift. And it’s giving old school investors that chance to have exposure to Bitcoin.”

“It’s just another step to adoption which is what everyone in crypto likes to see.”

Shone Anstey, chairman & CEO of network infrastructure company LQwD Fintech Corp., also spoke to this matter.

He noted that the futures-based bitcoin ETF would come with greater costs and complexity compared to a spot-based fund.

However, this development does “represent a significant regulatory win for the Bitcoin industry and may encourage the SEC to approve a Bitcoin Spot Price ETF.”

Armando Aguilar, vice president of Digital Assets Strategy for Fundstrat Global Advisors, provided a similar point of view.

“A futures-based ETF is not what everyone in the space was expecting but it’s a step in the right direction as digital assets cross into the mainstream,” he stated.

Silvia Jablonski, cofounder and chief investment officer for ETF sponsor Defiance ETFs, also commented on the situation.

“It’s very exciting news that Bitcoin in the ETF format is going to trade in US markets tomorrow,” she stated.

“I believe that this opens up the world of crypto to the masses like never before.”

“Is it the best vehicle for investors? Well, it depends on the investor,” noted Jablonski.

“Assuming that the investor is not mining cryptocurrency or comfortable with storing in a digital wallet, the next and easiest and best way to get pure Bitcoin exposure is to buy the physical asset/currency,” she stated.

“The second choice is perhaps looking at trusts that invest in cryptocurrencies. Those are the first movers in terms of listed fund-like structures, and are already trading in the secondary market (such as Grayscale and Bitwise),” said Jablonski.

“The ETF is really the third derivative of exposure to Bitcoin via an exchange-listed wrapper,” she stated.

“For investors who are brand new to trading crypto and are not comfortable with the aforementioned ways to get direct access, futures based etfs are a good alternative.”

However, she made sure to point out the potential drawbacks investors could face by putting their money into ETFs like the one that just received approval from The U.S. Securities and Exchange Commission.

“They have tracking-error potential, additional costs associated with contango and limits in terms of AUM available to rebalance the fund after a certain size which poses additional risk,” she noted.

Possible Increase In Demand

The introduction of this new ETF could potentially result in greater demand, several analysts pointed out.

Aguilar spoke to the proliferation of futures-based funds like the one going live tomorrow, noting that while they are not spot ETFs, he still thinks they will manage to attract substantial inflows from investors.

Jack McDonald, CEO of fintech firm PolySign, also chimed in.

“In general, I think a Bitcoin ETF will generate more demand for Bitcoin than not having one because it solves a lot of regulatory issues that many investors seek clarity on.” he stated.

“That said, a spot ETF for Bitcoin would generate much more demand than a futures ETF for Bitcoin given the relative costs and fees associated with the latter.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.


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