The first futures-based Bitcoin ETF was approved by the SEC less than 1 year ago. That's a significant milestone for Bitcoin and a new option for the average investor who wants to explore cryptocurrency.
While Bitcoin futures ETFs are SEC-approved to trade in U.S. markets, cryptocurrency is still a volatile investment. Here are some of the differences between futures vs. spot Bitcoin ETFs.
Are Bitcoin ETFs a Good Choice?
As an experienced investor in the stock market, you may be new to cryptocurrency, and Bitcoin ETF prices may make them seem like a great investment option for your portfolio.
Cryptocurrency investing comes with risk, and futures contracts add another layer to your decision. It's a good idea to consult a professional if you're considering investing in a Bitcoin futures ETF.
Bitcoin Futures ETFs
Futures contracts are an agreement to buy or sell an asset on a specific date for a set price. An exchange-traded fund (ETF) that holds futures contracts doesn't have shares or similar assets in the fund.
Futures ETFs often hold futures contracts in a niche or specialty market. Bitcoin futures ETFs are SEC-approved and able to trade on U.S. markets.
Many Bitcoin investors buy and hold coins for the long term. They believe that the future price of their coins will rise over time. This is HODLing in the crypto space.
Bitcoin futures ETFs hold contracts to buy or sell coins in the future at a set price. Investing in coins using a contract with a monthly expiry date seems counterintuitive to the concept of HODLing.
What Are Roll Costs?
Rolling refers to selling a futures contract and buying a new one at the end of a month. The fund manager rolls the expiring contracts into new ones.
The roll cost or yield difference between the two contracts can be a loss or gain to the fund investor. When the current contract is cheaper than the new contract, it costs the investor.
With a Bitcoin futures ETF, it's rare to have future prices lower than current contracts. Investors in these futures ETFs are likely to incur frequent roll costs.
What Is a Bitcoin Spot ETF?
A spot ETF is a fund that would hold Bitcoins directly. These ETFs are not available to investors in the U.S. at this time but there are many companies making applications.
In a spot fund, there are no contracts that expire at the end of the month. There would be no roll costs involved with this ETF because there's no requirement to sell the coins and repurchase them by a certain date.
The SEC has not approved any Bitcoin spot ETFs as they feel that the underlying market is subject to manipulation.
The SEC's approval of Bitcoin futures ETFs occurred because they felt that futures contracts weren't as susceptible to manipulation. The debate is ongoing.
Invest With Confidence
Contact a Cryptocurrency Financial Advisor at Mercer Street Financial for prudent investing advice. We will help you determine whether Bitcoin ETFs and other cryptocurrencies fit within your personal investment portfolio.
If you're crypto-curious, we can help. Our advisors have experience and understand the nuances of successful investing in cryptocurrency.