A Bitcoin futures ETF is the best way forward, or is it
Anticipation around the SEC’s approval of a Bitcoin futures ETF has been touted as a catalyst for Bitcoin’s resurgence. The price of Bitcoin has climbed 35% in the last two weeks given investors’ optimistic expectations from the SEC.
This time around, applications for ETFs have been filed under the Investment Company Act of 1940- a route that offers higher investor protection. As per a Bloomberg report, applications from Proshares, Invesco, Vaneck, and Valkyrie are expected to get the go-ahead by the end of this month.
However, a recent voice of dissent echoed when crypto influencer, Lark Davis put forward a disputing opinion on Bitcoin futures ETF. He stated that the “market really wants and needs spot BTC ETFs.”
#bitcoin futures ETFs are total garbage, they will still pump the market big time when approved, but what the market really wants and needs is spot BTC ETFs.
— Lark Davis (@TheCryptoLark) October 14, 2021
Meanwhile, Gensler has suggested that a futures-based ETF might be less risky for investors because it’s deep-rooted in regulatory commodity markets. In August, SEC Chair Gary Gensler implied that policymakers may be more open to an ETF if it were based around futures rather than the cryptocurrency itself.
On the other hand, on-chain crypto analyst Willy Woo has suggested that a Bitcoin futures ETF in the U.S. may be bad for retail investors as it places hedge funds at an advantage.
If a Bitcoin futures ETF is approved, IMO it will be an expensive way to hold BTC.
The ETF effectively outsources the holding of BTC to hedge funds through a chain of profit incentives.
— Willy Woo (@woonomic) October 8, 2021
Furthermore, in a recent development, the Australian Securities Exchange (ASX) is all set to launch its very first cryptocurrency-focused ETF, however, it will not be directly backed by any cryptocurrencies. In addition to this, Cathie Wood’s ARK Investment Management and investment-product firm 21Shares applied to the SEC. The firm hoped regulators will soon give the green light for a Bitcoin futures ETF.
However, the biggest concern with Bitcoin futures ETF is that buying ETF doesn’t mean that you are buying the actual asset. Instead, you are buying exposure to derivatives based on that asset. As per Bloomberg Intelligence analyst Eric Balchunas,
“Even if approved, a futures-backed fund could limit the positive impact. Investors generally don’t like derivatives, and a lot of advisors don’t like derivatives. A physically-backed ETF would be a major catalyst. I see this as a very minor catalyst.”