Should you buy a bitcoin futures ETF versus actual bitcoin or crypto stocks? Experts weigh the benefits of each. | Currency News | Financial and business news

A gold Bitcoin seen on the screen with a stock market graph in the background
Bitcoin has pushed to an all-time high of over $ 66,000.

  • Bitcoin futures ETFs burst onto the scene this week, marking a new milestone for the crypto market.
  • Insider spoke with market experts about how the new ETFs can be compared to actually owning bitcoin.
  • ProShares and Valkyrie launched their ETFs this week, with VanEck to follow.

A new type of exchange traded funds burst into the public markets this week with the arrival of ETFs linked to bitcoin futures.

Bitcoin futures ETFs invest in contracts used to speculate on future bitcoin prices. They can be bought and sold as a stock and do not require buyers to have an account on a cryptocurrency exchange or have a crypto wallet.

ProShares Bitcoin Strategy ETF, which tracks CME bitcoin futures, was launched on Tuesday and quickly pulled $ 1 billion in assets under management. Valkyrie’s Bitcoin Strategy ETF began trading Friday, and asset management firm VanEck’s Bitcoin Strategy ETF looks set to debut next week.

“When you look at the market and its entirety, bitcoin … is one of the most efficient assets in history,” Christopher Perkins, president of blockchain-focused investment firm CoinFund, told Insider this week. “Now that I look at this asset class, ask yourself, if you are an investment manager, ‘What is the reputational risk of not being able to have exposure to the most effective asset for eight of the last 10 years?'” He said.

When companies brought their products to market, Insider spoke with three experts about the pros and cons of buying bitcoin futures ETFs, the digital currency itself, or stocks of bitcoin-exposed companies.

Bitcoin futures ETFs

Although the debut of the futures ETF was an important occasion for the crypto market, there are some important differences and complexities that investors should be aware of.

According to Naeem Aslam, chief market analyst at AvaTrade, for mother-and-pop investors, “this is not the ETF for them.”

“A futures market trades on margin because you do not have the actual product you are trading with a synthetic price movement,” he said, and investors should anticipate that the price of bitcoin futures may differ from spot bitcoin prices.

While bitcoin futures ETFs give investors some bitcoin exposure, they have “shortcomings” and can be complex products for many retail investors, said William Cai, a partner at investment firm Wilshire Phoenix, which has an application for a registered spot bitcoin. product under assessment at SEK.

The most important feature of futures markets is that contracts have expiration dates, said Cai, who previously traded commodity futures and other assets during his more than 10 years at JPMorgan. A fund must roll out contracts, that is, sell out the near future before it expires, and then buy the next one.

“This process runs into trading costs and the potential for front-running issues where other market participants know you want to do this and they can … place it to take advantage of your actions,” Cai said.

Bitcoin futures ETFs “were so easily out of the gate to get some of the synthetic exposure,” for bitcoin, said Perkins, who recently joined CoinFund was Citigroup’s global co-head for futures, clearing and foreign exchange markets. “It’s not perfect cash exposure, and costs come with it … but with cash that settles the future, you do not have to worry about custody because you do not possess the assets,” he said.

Retail investors were largely on the sidelines of ProShares’ product launch, according to Vanda Research, which tracks retail investment activity. Retail investors may be aware of the ‘contango trap’, Vanda said, referring to a market situation where futures contract prices are higher than the spot price.

In addition to the complexity of the underlying contracts, futures ETFs have some peculiarities. High demand for ProShares Bitcoin Strategy ETF has already pushed the fund to the limit of how many contracts it can have, according to a Bloomberg report. The fund may spread holdings for longer dated contracts, but it risks pulling the fund further away from bitcoin’s spot performance.

Bitcoin and cryptocurrencies

Aslam, a London-based former hedge fund trader, said he can use bitcoin futures ETFs in the options market to putter when the time comes to venture into more complex strategies. Puts entitle an investor to sell an underlying asset.

But Aslam suggested average retail investors wanting bitcoin exposure to buy the digital currency itself. “The way we have bought bitcoin – through regulated exchanges or exchanges that exist within these regulatory boundaries – is the best way to really go about buying bitcoin,” he said.

Many investors have gone the stock route to gain exposure to bitcoin, including picking up shares of bitcoin miners Marathon Digital Holdings and Riot Blockchain as well as MicroStrategy, a data analytics firm run by CEO and bitcoin bull Michael Saylor. The company had approximately 114,042 bitcoins from last month.

“I think it’s a used exposure to go into stocks,” Aslam said. [Investors] “is not going to enjoy the actual taste of bitcoin, the actual momentum or the volatility we have with respect to bitcoin,” he said.

Buying cryptocurrencies can add risks that individual companies face along with systematic market risks, Cai said.

“If you go through … companies that invest a lot of their money in bitcoin, I would say it’s a proxy. But sometimes proxies can be useful if they do not have access to other ways of doing things you will do.”

“But I want to warn you that you really need to know the risk you are taking,” by buying cryptocurrencies. “That is, it is only a proxy and not a direct reflection of the price of bitcoin. They can differ wildly,” Cai said.

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