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Here's How Bitcoin Traders May Miss Out on ETF Frenzy, Bloomberg

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Tue, 10/19/2021 - 13:08
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Arman Shirinyan
Here's why the market might be overestimating the impact that new futures-based ETFs will bring to the market
Here's How Bitcoin Traders May Miss Out on ETF Frenzy, Bloomberg
Cover image via stock.adobe.com

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While the cryptocurrency industry waits for the drop of the first Bitcoin exchange-traded fund to be delivered shortly, Bloomberg has released an article in which the agency covers how and why traders might miss even greater rewards while trying to catch big gains from a "new" product.

The primary basis of such a statement is the Bitcoin futures curve. Futures contracts with long expiration dates usually trade at a premium to the price of the underlying asset. The main reason for that is that most traders believe, due to its nature, cryptocurrency will rise in the future.

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But the main problem with current ETF products is the underlying asset. While the fund may be called "Bitcoin ETF," it's not actually tied to Bitcoin. The underlying asset here is Bitcoin futures contracts that become a reason for funds to lose some of their profits since they have to pay fees to enter a new contract. Since longer futures contracts trade at the premium, it is more convenient to enter short-term futures contracts and pay the fee.

Bitcoin futures ETF
Source: Bloomberg

For the mentioned reason, Genesis Trading's Noelle Acheson said that Bitcoin traders are overestimating the potential upcoming demand for derivatives-based ETFs since, as was mentioned, they have more underlying management costs. As an example, the BITO fund currently carries an expense ratio of 0.95%, while the average equity-based ETF will function at around 0.7%.

With the number of underlying expenses behind futures-based Bitcoin ETFs, traders and investors might not choose the mentioned funds for long-term crypto market exposure. Instead, it is more reliable to simply buy the asset itself rather than invest in the ETF, especially for retail traders.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.