Bitcoin ETF Futures 

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bitcoin etf

Bitcoin ETF futures are collections of Bitcoin-related investments that are available through regular trading platforms by investment firms, and they can be bought and sold like ETFs. These Bitcoin ETFs aim to provide everyday investors and others a way to invest in digital currencies without actually having to buy them.

Key Takeaways

  • Bitcoin ETF futures are special funds that track Bitcoin’s price changes.
  • They do this by using futures contracts.
  • Fund managers buy these contracts and group them together into a fund.
  • These funds became well-liked when they first came out, especially since the SEC had first stopped funds that owned Bitcoin directly before saying yes to them in 2024.

What is Bitcoin ETF Futures?

An exchange-traded fund (ETF) is a type of investment that holds different assets and lets people buy and sell parts of it, called shares, on a regular stock market. ETFs let investors spread their money across different types of investments and they can trade these shares any time during the market’s open hours, at the going market price. 

This means, instead of buying many individual stocks, an investor can just buy shares in one Bitcoin ETF that has investments in those stocks.

A futures contract is an agreement where two parties decide to trade a set amount of something standardized at a fixed price on a certain future date. Bitcoin futures contracts are a type of these agreements. 

So, a Bitcoin futures ETF is a fund that contains Bitcoin futures contracts and offers its shares to people for investment. These shares are traded on well-known stock exchanges.

To create these Bitcoin ETF, companies buy futures contracts and put them together into a fund. Then, they make the shares of this fund available to investors. While these shares are being traded, the futures contracts inside the fund are managed actively. 

This way, instead of buying and selling Bitcoin on a digital currency exchange, investors can deal with these shares on a stock exchange and get involved with Bitcoin indirectly.

History of Bitcoin ETF Futures 

The idea for a Bitcoin ETF (a fund that holds actual Bitcoin, not just contracts for future Bitcoin) started to take shape when people in finance saw Bitcoin’s price going up and more investors getting interested in it. This looked like a good chance to make money from Bitcoin’s rising value.

When the price of Bitcoin skyrocketed, it became too expensive for most people to buy Bitcoin directly. So, investment companies, seeing that people wanted a way to invest in Bitcoin, started to create Bitcoin ETFs. The first attempts to get these funds approved by the Securities and Exchange Commission (SEC) began in 2013 with the Winklevoss twins.

In a regular stock Bitcoin ETF, the fund buys stocks, and these stocks are what the fund owns. The company managing the fund then sells small parts of the fund, called shares, on the stock market.

The first official Bitcoin ETFconnected to Bitcoin was the Proshares Bitcoin Strategy ETF (BITO), which mostly dealt with futures contracts. The SEC gave it the green light in October 2021, and it’s traded on the New York Stock Exchange.

For a lot of Bitcoin enthusiasts, a true Bitcoin ETF would mean a fund that holds actual Bitcoin that a company has bought and turned into shares for people to invest in. But the SEC kept turning down these ideas until 2024.

Then, in August 2023, a court decision made the SEC look at these ideas again, and by January 10, 2024, the SEC had approved 11 Bitcoin spot ETFs. These ETFs, which actually have Bitcoin instead of just futures contracts like the Proshares Bitcoin ETF, started being traded in January 2024.

Bitcoin ETF Futures Goals

Security:

When you own Bitcoin, you technically don’t hold it in a wallet. Instead, you have security keys that you must protect. If you buy Bitcoin through an exchange, you can store your keys there.

However, exchanges and wallets can be hacked, and keys can be stolen, risking your Bitcoin. While some methods allow offline key storage, none are completely foolproof.

ETF Simplicity:

Unlike owning cryptocurrency directly, an Bitcoin ETF doesn’t require you to manage keys or move them between different storage methods. Instead, you own shares in the ETF, which itself doesn’t hold any cryptocurrency (especially if it’s a futures fund).

Affordability:

The high price of Bitcoin is a significant barrier for average investors. In 2021, Bitcoin reached nearly $69,000 per BTC, but its price fluctuated after next two years. 

Retail investors might not have enough funds to buy a whole Bitcoin. However, ETFs allow exposure to Bitcoin within a budget, risk tolerance, and investment goals on a regulated exchange.

Familiarity:

ETFs are widely understood in the investment world compared to cryptocurrencies. If you’re interested in digital currency investing, an ETF lets you focus on an asset you already comprehend, without delving into complex topics like blockchain, mining, and decentralized exchanges.

Bitcoin Futures ETFs Limitations

Let’s explore the limitations of investing in future ETFs, along with the risks associated with the cryptocurrency industry.

Regulatory Uncertainty: The rules around cryptocurrencies are still evolving globally. Changes in regulations can affect the trading, legality, and valuation of Bitcoin futures, in Bitcoin futures ETFs. 

Market and ETF Liquidity: Limited liquidity in the futures market can lead to spreads, making it costlier for investors to buy or sell ETF shares. Newer Bitcoin futures ETFs may temporarily face higher liquidity risk as they attract investments and issue shares.

Security Concerns: Cryptocurrencies are nothing but digital assets, making them vulnerable to fraud, hacks, and security breaches on cryptocurrency exchanges. It only depends on where the future contracts are held, they may face distinct security risks compared to other electronic investments. Some future contracts may or may not be stored in cold wallets, limiting their protection.

This discrepancy can occur due to transaction costs,management fees, or challenges in replicating security prices accurately.

As a result, the ETF’s value may not always match the exact current value of Bitcoin.

How to Invest in Bitcoin ETF Futures 

What is a Bitcoin ETF Futures?

A Bitcoin ETF Futures is a special type of fund that you can buy and sell on the stock market. It doesn’t have actual bitcoins in it. Instead, it has contracts that bet on what the price of Bitcoin will be in the future.

How does a Bitcoin ETF Futures work?

When you invest in a Bitcoin Futures ETF, you’re buying shares of a fund that owns Bitcoin futures contracts. These contracts are agreements to buy or sell Bitcoin at a set price on a specific date. The ETF’s value goes up or down with the price of these contracts.

Why would someone invest in a Bitcoin Futures ETF?

People might choose a Bitcoin Futures ETF because it’s a way to invest in Bitcoin’s price without having to buy and store the actual cryptocurrency. It’s also traded on regular stock exchanges, which can feel more familiar and secure for some investors.

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