18 Oct 2021
Futures-based bitcoin ETF approved - ProShares Bitcoin ETF, $BITO, set to start trading today
The first bitcoin ETF has been approved by the SEC, and it’s based on CME futures. While a huge bitcoin milestone, futures-based ETFs are less suitable for long-term exposure due to roll-over effects.
So it happened, ProShares futures-based bitcoin ETF has been approved and will begin trading under the ticker BITO on Tuesday. The recent weeks have seen growing anticipations running towards these critical days. Three weeks ago, we published a blog post providing our sats on how this period could unfold in the market while also commenting on the difference between the spot-based and futures-based ETFs.
The registration statement issued by ProShares included an interesting nuance. The ETF originally intended to invest in both futures and other bitcoin investment vehicles such as the Canadian ETFs. However, there was no mention of these vehicles in the final registration statement, meaning that BITO will strictly involve futures.
An ETF based on futures is not suitable for long-term investments due to contango effects. The chart illustrates CME’s front-month contract and next-month contract, and the price premium on the next contract compared to the front-month contract. The dots depict the expiry dates of the futures. Evident by the chart, the bitcoin futures curve is usually in a state of contango. This impacts investors, as rolling over futures comes at a cost.
Additionally, BITO’s basket also consists of Money-market instruments, including treasury bills and repo agreements. The amount of cash reserves will lead to numerical differences between the returns of the ETF and BTC. If Bitcoin goes up 1%, the basket should go up less than 1%.
This could lead to muted interest from investors to invest in a futures-based ETF. November 14th is the final deadline for the SEC to give a response to VanEck’s spot-based ETF filing. Then follows several spot-based filings in the months thereafter. These ETFs do not involve the cost of rolling but seem less likely to get SEC’s approval as of now. This could lead to muted interest from investors to invest in a futures-based ETF. November 14th is the final deadline for the SEC to give a response to VanEck’s spot-based ETF filing. Then follows several spot-based filings in the months thereafter. These ETFs do not involve the cost of rolling but seem less likely to get SEC’s approval as of now.