In a milestone for cryptocurrency, the first Bitcoin futures ETF hit the markets this week after winning regulatory approval late last week, reports Barron’s. The fund’s sponsor ProShares filed a registration with the SEC and the listing (ticker: BITO) was approved by the NYSE.
The pending launch sparked a rally in Bitcoin, driving it up 7% on Friday alone and 50% since September 30th. Sponsors have been trying to get approval for years from the SEC, which has never approved an ETF that owns Bitcoin directly, the article reports. The SEC approval could pave the way for more futures-based ETFs, with some analysts predicting that this will be the first of many.
With an expense ratio of 0.95%, the ProShares ETF is less costly than some of the closed-end funds on the market like the Grayscale Bitcoin Trust at 2% or the Bitwise Index fund at 2.5%. And ETFs appeal to investors who want exposure to crypto inside a fund wrapper as opposed to buying it directly on an exchange.
However, investing in Bitcoin through futures contracts isn’t without drawbacks, the article contends. Investors can incur costs when managers must constantly roll over expiring contracts into new ones. Another complication is “contango,” when a futures contract with longer expiration trades at a higher price than those with short-term expirations. And, a fund could rack up a tax liability on unrealized gains if it doesn’t sell a contract. While ProShares stated in its filing that a “significant portion” of any capital gains or losses would be short-term, that’s not ideal for long-term investors.
But a Bitcoin ETF will be popular with advisors looking to add crypto to their clients’ portfolios, allowing them to charge management fees and trade the ETFs which tend to be very liquid. And this dawning of crypto ETFs may put pressure on the closed-end trusts to lower their fees.
