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ProShares Bitcoin Futures ETF: A New Way to Buy Bitcoin

Tuesday, October 19, 2021 02:59 PM | Nick Dey

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ProShares Bitcoin Futures ETF: A New Way to Buy Bitcoin

Today marked a big day for Bitcoin, blockchain investors and enthusiasts alike with the debut of the ProShares Bitcoin Strategy ETF under the ticker symbol BITO following Friday’s approval by the SEC.

During its first day, BITO opened at $40.88 and closed at $41.49.

This seems to be just the beginning for Bitcoin ETFs. Lisa Braganca, a former SEC branch chief, expects that the SEC will be incentivized to approve more bitcoin ETFs in order to give customers “lots of choices”

The ProShares ETF is the first Bitcoin ETF that can provide exposure to the price of Bitcoin through a stock-like security. The fund seeks to “provide capital appreciation primarily through managed exposure to bitcoin futures contracts.”

And while BITO will bring a simplified approach to investing in bitcoin, mainly in that it is in a familiar format (ETF) and the fact that will be available on any platform that offers stock trading.  It won't provide the same long-term price performance at holding Bitcoin, because there are costs associated with rolling futures contracts and managing the ETF structure.

Futures-based ETFs operate by owning futures contracts, as opposed to actual bitcoin. The ETF will be buying the futures from some entity that will  hedge it's exposure by buying actual bitcoin, so there is still a pretty tight relationship between the price of Bitcoin and the price of the Bitcoin ETF.

So for those looking to truly get into Bitcoin, a futures-based ETF probably isn't really the answer. SEC Chairman Gary Gensler likely preferred a futures-based approach due to security issues as futures trading is easier to track than bitcoins on the actual blockchain. This structure also potentially protects ETF investors from things like the ETF sponsor losing the password to the wallet for all the bitcoins, or having the bitcoins stolen.

So with BITO being the first to successfully make it to the NYSE, it’s worth exploring who else has crypto ETFs in the works and what options already exist for people wanting to invest in bitcoin.

The Grayscale Bitcoin Trust (GBTC) is a closed-end grantor trust that follows the price of the CoinDesk Bitcoin Price Index. The trust debuted back in 2015 and manages over $38 billion in digital currency assets, with Bitcoin being the primary holding.

Meanwhile, the Bitwise 10 Crypto Index Fund (BITW) launched in 2017 and tracks the 10 largest, investable cryptos. For those looking to invest in a basket of cryptocurrencies, this could be a good play as it invests in the largest and most reputable crypto projects.

Additionally, Cathie Wood’s Ark Invest has filed the paperwork for a bitcoin ETF that will trade under the symbol ARKA. This will be a futures-based ETF that and will be made in partnership with 21Shares.

Lastly, Invesco went against the norm and oannounced on the eve of the BITO debut that it has dropped a bitcoin futures-based ETF project that is had in the works.

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