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Here's How Much Bitcoin ETF Underperforms Compared to Spot BTC

Sat, 10/30/2021 - 14:13
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Arman Shirinyan
First calculation of annualized roll cost for Bitcoin futures ETF by Bloomberg analyst
Here's How Much Bitcoin ETF Underperforms Compared to Spot BTC
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Bloomberg ETF analyst Athanasios Psarofagis pointed out on his Twitter account the estimated annualized roll cost of the newly unveiled futures-backed Bitcoin ETF, which is estimated at 11%.

Where 11% comes from

The roll cost of the futures-backed Bitcoin ETF will always be relatively higher than the roll cost of any physically-backed crypto ETF. Due to the foundation of the exchange-traded fund itself, ProShares has to close this month's futures and buy the next month's contracts, which usually cost more due to the "contango."

Futures that trade closer to the expiration date usually cost less than later-dated ones. Due to this effect, almost any futures-backed ETF buys futures high and sells them low compared to the spot asset.

The annual roll cost is calculated by comparing the difference between the daily close of different futures contracts. In the case of the BITO ETF, Bloomberg ETF analysts compared November and December Bitcoin futures contracts.

The problem with the futures-backed ETF

In addition to the aforementioned contango issue, Bitcoin ETFs that are based on Bitcoin derivatives rather than the actual asset can cause issues for investors who are looking to expose themselves to the crypto market via futures directly. But sometimes future contracts exceed the underlying asset's price, which puts some investors into loss almost as soon as they enter the market.

Valkyrie Gives Up on Leveraged Bitcoin Futures ETF

There is only one solution for problems that come with futures-backed ETFs, which is the approval of a physically-backed Bitcoin ETF that will track the spot asset rather than its subproducts.

Unfortunately, the SEC has not yet given any signs of potential approval of physically-backed Bitcoin ETFs. Various experts point out that the main problem with those is the unregulated nature of the cryptocurrency market.

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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.