Spot Bitcoin ETF vs. Futures: Understanding the Key Differences
Date: 2023-09-13 Author: Dima Zakharov Categories: BLOCKCHAIN, IN WORLD
What is a Bitcoin ETF?
An ETF, short for Exchange Traded Fund, can be thought of as a basket containing one or multiple assets, all tradable on an exchange.
A Bitcoin ETF is an exchange-traded fund that tracks the price changes of a single cryptocurrency, BTC. Investing in such an instrument can yield profits.
Why Do We Need a Bitcoin ETF?
A Bitcoin ETF opens up opportunities for many market participants who couldn't previously invest directly in cryptocurrency. Let's consider a large company as an example. Its board of directors may not approve direct investments in cryptocurrency due to associated risks and complexities, including the need to manage its storage. The solution is a Bitcoin ETF. This instrument involves investing in a fund rather than directly purchasing cryptocurrency. In this case, the fund's creator company or a predefined custodian is responsible for coin storage.
Spot vs. Futures Bitcoin ETF
A spot Bitcoin ETF is an exchange-traded fund underpinned by the actual coins themselves, not derivative financial instruments. U.S. regulators view such an instrument as too risky. As of the time of this review, all applications for its launch in the U.S. have been rejected.
In October 2021, a month before BTC reached an all-time high of nearly $69,000, futures Bitcoin ETF trading was launched in the U.S. ProShares introduced an instrument under the ticker BITO on the New York Stock Exchange (NYSE).
Bitcoin futures are derivative financial instruments, meaning they don't involve direct investments in cryptocurrency but rather involve working with futures contracts, which constitute the fund.
The launch of BITO followed many attempts by companies to gain approval for a spot Bitcoin ETF. The U.S. Securities and Exchange Commission (SEC) hinted to market participants that gaining approval for a futures Bitcoin ETF would be easier. Consequently, representatives of the crypto industry temporarily abandoned their efforts to launch a spot BTC fund. The race resumed in 2023, driven by interest from investment giant BlackRock. Previously, BeInCrypto compiled a list of companies continuing the race to launch a spot Bitcoin ETF in the U.S.
Market participants are keen on the launch of a spot Bitcoin ETF because it provides access to working directly with BTC, rather than derivative financial instruments. BeInCrypto previously discussed with experts the potential consequences of launching a spot exchange-traded BTC fund.
