U.S.A’s first bitcoin-linked exchange traded fund (ETF) made its trading debut on October 19th. The fund, ProShares Bitcoin Strategy ETF (BITO) tracks contracts speculating on the future price of bitcoin instead of tracking the cryptocurrency itself. The launch was well-received with trade in excess of $700 million notional, and BITO jumped 4.8 percent to close at a respectable $41.94.
BITO’s launch is being seen as a precursor to a spot bitcoin futures ETF. Since 2017, people have been calling for a bitcoin-related exchange traded fund. In 2017, asset managers began attempting to launch spot bitcoin ETFs, although so far, such proposals have been rejected by the Securities and Exchange Commission.
However, one reason to be wary of a Bitcoin Futures ETF is the prospect of contango bleed. With BITO, for instance, it is well-understood that the investor can expect prices and performance to differ from the asset itself. In its prospectus, the fund has mentioned contango as a significant risk for investors.
Contango comes from the standard expectation in futures markets that prices are higher for longer-dated contracts compared to shorter-dated contracts. In case investors are obliged to continuously sell at the lower agreed-upon price and buy at a higher price, they risk losses. With crypto, like bitcoin, the likelihood of the forward curve being in contango is high.
Crypto investors warn that a Bitcoin Futures ETF may not benefit retail investors due to contango bleed, along with other futures market phenomena. Retail investors may fare better by buying bitcoin.
