If you’re interested in investing in Bitcoin, you might be wondering what the best way to do it is. With many different exchanges and other options out there, it can be difficult to figure out what the right choice is—especially if you aren’t entirely familiar with cryptocurrencies and their markets. Bitcoin spot and futures ETFs are both potential options, so let’s look at some of the key differences between them to help you decide which one is right for your needs.
What is a Bitcoin ETF?
Bitcoin ETFs are exchange-traded funds that are designed to reflect the current price of Bitcoin. Crypto ETFs have been gaining in popularity in recent years as investors look for ways to get exposure to the volatile world of cryptocurrencies without having to actually own any coins. The main difference between these two types of investment vehicles is how they are traded. The futures contracts will be listed on regulated exchanges, and can be bought and sold at anytime during the trading day.
On top of being traded on regulated exchanges, investors will have to pay stamp duties for each purchase. However, Bitcoin futures are complex financial instruments that come with their own risks and rewards so you should only consider them if you have a firm understanding of what you are getting into and are ready to accept these risks and rewards. While these contracts do offer an exciting opportunity for investors looking to make big gains on crypto’s dramatic price swings, they can be difficult to understand and risky if used incorrectly. Also watch out for many of these products having large amounts of futures risk which is another issue that makes them far more volatile than actually owning coins or tokens themselves.
What is a Bitcoin futures ETF?
The majority of Bitcoin futures ETFs hold Bitcoin futures contracts. Futures contracts give users the chance to speculate on the price of Bitcoin, and they can buy or sell it at a specified price on a set date. An exchange-traded fund that owns Bitcoin futures contracts is an exchange-traded fund that owns contracts entitling one to buy or sell Bitcoin at a predetermined price in the future. In the case of the ProShares Bitcoin Strategy ETF, an investor is buying into a fund that holds futures contracts. By using the ETF, the user can avoid investing in futures directly, and can instead trade BITO like a traditional stock.
Speculative or hedging purposes are usually the main purposes of futures contracts. A futures ETF allows users to invest in digital assets and Bitcoin futures contracts without having to go through an exchange for that purpose. Compared with most cryptocurrency exchanges, this method is also less expensive. However, futures ETF’s don’t involve investing in Bitcoin at its spot price, so some enthusiasts might not consider the offering a “real” crypto adoption. A Bitcoin futures ETF may also charge an annual fee, so many investors may prefer an alternative ETF option.
How does a Bitcoin ETF work?
A Bitcoin ETF is a type of investment fund that tracks the price of Bitcoin, similar to how a stock or bond ETF tracks the price of a security or commodity. When you invest in a Bitcoin ETF, you are buying shares of the fund, which then buys Bitcoin on your behalf. The key difference between a spot and futures market is that in a spot market, assets are traded for immediate delivery, while in a futures market, they are traded for delivery at some future date. So when you invest in a Bitcoin spot ETF, you are buying Bitcoin that will be delivered to you immediately. However, because the price of Bitcoin can be volatile, there is always the risk that the value of your investment will go down.
On the other hand, investing in a Bitcoin futures ETF is a way to get exposure to Bitcoin without actually buying it directly. A futures market allows traders to bet on whether Bitcoin will be worth more or less at some point in time in the future, so investors can speculate and profit from price movements regardless of whether they own any Bitcoin themselves. However, a key difference between buying and trading futures contracts is that you are never entitled to physically receive Bitcoins if you have bought a futures contract because investors just buy contracts, not actual bitcoins. Instead, your gains or losses are based on changes in price at expiration when an exchange buys or sells your contract for cash and gives you back your share of profits or losses.
The fight for a Bitcoin spot ETF
VanEck, SolidX, and the CBOE BZX Exchange have all filed for a Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC). The SEC has yet to approve any of these applications, but it’s widely believed that a Bitcoin ETF would bring more institutional investors into the cryptocurrency space.
However, there’s another type of Bitcoin-related investment product that’s already available to investors: futures-based exchange-traded funds (ETFs). These products track the performance of futures contracts on Bitcoin, rather than the spot price of the cryptocurrency.
Before we dive into how futures-based ETFs work, let’s first talk about what they are and who they’re intended for. A futures-based Bitcoin ETF is technically a security that you can buy or sell on an exchange—such as on NYSE Arca—that tracks an underlying investment (in our case, a future contract on Bitcoin). It’s also considered to be very similar to any other exchange-traded fund (ETF), which is why many people use these two terms interchangeably. There’s some notable differences between these two types of investments, however, so it’s worth understanding each type before deciding which one is right for you.
Are spot Bitcoin ETFs better than futures?
If you’re trying to decide whether to invest in a spot Bitcoin ETF or a futures Bitcoin ETF, it’s important to understand the key differences between the two. For one, spot Bitcoin ETFs track the price of actual Bitcoins, while futures Bitcoin ETFs track the price of Bitcoin futures contracts. Another key difference is that spot Bitcoin ETFs are traded on exchanges like regular stocks, while futures Bitcoin ETFs are traded on commodities exchanges. Finally, it’s worth noting that spot Bitcoin ETFs are generally more expensive than futures Bitcoin ETFs.
You might wonder why futures Bitcoin ETFs are cheaper than spot Bitcoin ETFs, given that they track identical assets. The main reason is that it’s significantly easier to short a futures contract than it is to short an actual Bitcoin, which means there are more opportunities for arbitrage in a futures market. To be sure, many investors will prefer to buy a spot Bitcoin ETF instead of a futures Bitcoin ETF because of convenience, since you don’t need any specialized knowledge or equipment to do so.
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How many Bitcoin ETFs are there?
With about $1 billion invested, the ProShares BITO Bitcoin futures ETF is one of many companies launching Bitcoin ETFs on their own respective exchanges. Two popular investment options are the BitO ETF and the Valkyrie Bitcoin Strategy ETF. These can be traded on the New York Stock Exchange (NYSE Arca). Not only is Valkyrie on Nasdaq with the ticker BTF, but it also has VanEck Bitcoin Strategy ETFs and Bitcoin futures ETFs. A VanEck Bitcoin Strategy ETF provides investors with exposure to Bitcoin futures. This ETF’s ticker is XBTF.
There are currently only three Bitcoin ETFs on the market: users need to choose which ETF is best for them based on their own circumstances since they are available on different exchanges and have different prices. In addition to bitcoin futures ETFs listed on their own exchanges, there are other companies that offer Bitcoin futures ETFs, giving investors different options for exposure to cryptocurrency and access to Bitcoin futures.