Bloomberg ETF analyst Eric Balchunas has shared on his Twitter account the volumes of two Bitcoin futures exchange-traded funds that have received the highest volumes in two weeks, and the main reason might be the high volatility of the spot pairs.
Why Bitcoin ETFs are being used
Bitcoin futures-backed ETFs are currently the only way for institutional investors to expose themselves to the cryptocurrency market in the U.S. Other options are either limited or unavailable.
$BITO and $BTF both had their biggest volume days in about two weeks. $BITO with a $400m traded, which is not only a ton but = 25% turnover in one day- indicating its usage as a trading tool. pic.twitter.com/ukDGeSEa6F— Eric Balchunas (@EricBalchunas) November 10, 2021
The volume of the two exchange-traded funds is usually correlated with spot Bitcoin trading pairs, but the volume on the cryptocurrency has not been outstanding, which means that investors might have used the ETF to avoid unnecessary volatility on the market.
BITO or ProShares Bitcoin ETF has traded $400 million volumes, the highest number since the middle of October when the ETF had just been listed.
High volatility on the crypto market
High volatility might be the main reason why investors choose to get exposure via ETF rather than the underlying asset or perpetual futures. Since BITO and BTF products are available for trading only during NYCE trading hours, which means that it avoids immediate volatility spikes that occur on the cryptocurrency market that is always actively trading.
While Bitcoin ETFs might be an alternative for spot trading pairs, not all traders happily use them due to high roll costs. In order to properly track the price of the asset that investors receive exposure to, funds have to constantly buy and sell their holdings. In periods of high buying pressure, Bitcoin futures might trade at a premium compared to the actual asset.
With this issue, some traders might constantly overpay for their positions, which then creates up to a 20% annual loss due to roll costs and contango bleed.