What are the disadvantages of investors to keep a Bitcoin futures ETF?

The introduction of the first US stock exchange-traded fund last month, which is linked to the Bitcoin price, went into history as the strongest ETF laying down of all time and quickly collected a fortune of more than $ 1 billion.

The Bitcoin Fund of Valkyrie Investments was second after the Proshares Bitcoin Strategy ETF. It is expected that several other Bitcoin futures ETFs will be launched shortly.

For US investors, it is an opportunity to catch up with the lost soil opposite Canada and Europe, where dozens of stock market-traded products have both the spot price and the futures in Bitcoin and other cryptocurrencies have already accumulated several billion dollars of assets.

But a feature of the new US launches could restrict their success: they are not based directly on the Bitcoin price, but on Bitcoin futures. For this reason, the amount of the outstanding transactions with Bitcoin futures at the Chicago Mercantile Exchange of $ 1.5 billion has increased to an all-time high of $ 5 billion last month, according to Glassnode, a company for crypto-analysis.

Why does that play a role?

futures fix a price for Bitcoin in the coming months. However, you can deviate from Bitcoin's spot price on a certain crypto exchange.

This is partly due to the fact that the Bitcoin futures prices of the CME Group are based on compound prices on five crypto exchanges.

In addition, every ETF based on futures can remain behind the underlying asset that he is supposed to imitate. Futures contracts run out on a fixed date and have to be "overrun" in newer versions. The transaction costs and administrative fees for thousands of new contracts come from the fund.

The United States Oil Fund, the $ 2.4 billion olar oil-futures ETF, has underneath the price of WTI-Rohöl, which it is to pursue in the past ten years

Solactive, an index provider, estimates that futures have so far made about 13 percentage points less than bitcoins increase by almost 120 percent.

"Investors in Futures-based ETF funds are exposed to an additional price volatility risk and the persecution of discrepancies between Bitcoin and futures prices," said Alastair Sewell, Senior Director of Fund Ratings at the Rating Agency FITCH.

Can a futures-bitcoin ETF be too successful?

In a way, yes. The ETFs should follow the Bitcoin price closely, so that the most requested futures contract is the one who is closest to the current date, known as the front month or spot contracts. For this reason, Proshares keeps all of his 3,900 futures positions in November contracts.

The CME Group has limited the number of contracts that a party can buy to prevent a company from driving the market into the tightness. This could lead to problems with Bitcoin futures because the market is relatively small.

When a company reaches the limit of 4,000 contracts per unit, it must buy long-term futures contracts for which there are no limits.

This is associated with costs. If the market expects the Bitcoin price to increase in the long term, the price of long-term futures contracts will increase over the short-term contracts, which is known as a contango. This causes higher costs for the fund if the futures contract is rolled into the next month, which effectively sells and bought high.

These costs could mean that the ETF remains behind the price of the underlying and, according to industry estimates for Bitcoin, is up to 5-10 percent per year.

Theoretically, the CME could also ask the ETF provider not to buy longer-term contracts.

Proshares stated that in his view, the risks that result from these positions are overrated.

"We have.. The potential to buy additional contracts according to an exception.

"We have additional capacities available. This is a developing and growing market. We believe that the market will continue to grow and that new market participants will be added," he added.

Which other potential problems arise from the structure of the cryptoma market?

crypto developers do not agree on how the underlying blockchain technology should work, and if you cannot enclose your differences, the last step is to create a fork in the network.

In this case it is unclear which branch of the ETFs should follow. One page will use newer software and the existing network will use the older version. The prices can vary between the two.

Bitcoin has already been subject to several forks. Ethereum, another cryptocurrency, was also re -grated this summer. The version used to form a Bitcoin price index is not in the hands of the ETF sponsor, but a decision of an industry-benchmark committee.

Many investors hope that the US regulators will approved an ETF covered by Bitcoin in the coming months. This official green light could open the doors to Geldern from institutional investors who want a commitment.

For private investors who want the commitment, a tempting alternative can simply be to buy Bitcoin.