A number of disadvantages make investors reluctant to participate in Bitcoin futures ETFs
With two Bitcoin futures ETFs about to hit the market, let’s dive into the cost of owning these contracts. The ProShares Bitcoin Futures ETF is set to go live today, likely followed by Invesco’s ETF on October 19th.
There are additional costs associated with ETFs. In addition to brokerage commissions, analysts expect higher cost ratios for these exchange-traded funds. Since ProShares filings have an annual operating cost of 0.95%, an investor would essentially spend $ 9.5 for every $ 1,000 investment per year.
Also, it can be an expensive call for ordinary traders compared to BTC wallet traders. And that’s not all, as some brokers also require investors to secure cash in order to execute trading positions.
Jamie McAvity, commodities investor and CEO of Cormint Data Systems, recently tweeted why a futures ETF may not be the best return on investment.
“If you graph the * -1% roll yield that a futures ETF pays each month to hold a position in the future, it’s like watching a car accident in slow motion:
1 BTC =
20 months: 0.8BTC
80 months: 0.5BTC
120 months: 0.3BTC
GaryGensler – Is that how you protect investors? “
If you plot the -1% roll yield that the futures-based ETF pays each month to maintain its position in futures, it’s like watching a car crash in slow motion:
1 BTC =
20 months: .8BTC
80 months: 0.5 BTC
– James McAvity (@jamesmcavity) October 16, 2021
* The roll yield is the profit made when the futures market compensates for a sell-off after converting a short-term contract to a long-term contract and benefiting from the price convergence with a higher spot price.
Investors should also note that the trading and clearing of Bitcoin futures is regulated by the Commodity Futures Trading Commission (CFTC) in the United States. However, Bitcoin futures are listed and cleared on the Chicago Mercantile Exchange, a Designated Contract Market (DCM) and derivatives clearing organization (DCO) registered in the United States.
Basically, the contract does not include the actual Bitcoin exchange. In addition, users do not need a digital wallet to take positions. Instead, CME explains that Bitcoin futures are financially settled with a brokerage firm. Nor is it interesting to reiterate that these contracts do not directly track the spot price of Bitcoin.
The exchange claims that Bitcoin futures can be traded around the clock. However, investors should note that clearing sessions on the CME are different from settling transactions in a decentralized space. Trade access is “closer” 24 hours a day, six days a week.
When is the right time to get into a Bitcoin futures ETF?
Investors who are willing to invest in cryptocurrencies but do not have direct access to the asset class can consider a Bitcoin futures ETF. Since ETFs can incur significant management fees, many prefer to get straight into the market.
It’s also important to note that some ETFs can experience serious tracking errors. However, the futures contract can avoid this as it does not exactly track the spot price. It’s about “getting that, losing that”. However, this could be one of the reasons the SEC chairman was more comfortable with a futures-based ETF than a direct Bitcoin ETF.
CEO Jan van Eck previously said:
“Gensler is much more comfortable dealing with regulated exchanges and institutions that the SEC or other federal regulators can interact with. That’s why he says on Why does he say positive things about Bitcoin futures?
Not everyone in the community is disappointed, however, as the Bitcoin Futures ETF is set to pave the way for a spot Bitcoin ETF. Recently, Mark Cuban said in a TV interview that he would not invest in an ETF:
“I can buy BTC directly. Why not?”
With that, ETFs from fund providers like Valkyrie Investments and VanEck could be the next option to be approved.
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According to Ambcrypto