By Mark DeCambre
Hello there! Think of this as the crypto edition of ETF Wrap.
And it is hard to blame us for being in a crypto state of mind, after the debut of the U.S.’s first bitcoin-linked exchange-traded fund. The new product offered by the folks at ProShares has helped to spark a rally to new heights for bitcoin /zigman2/quotes/31322028/realtime BTCUSD -2.64% , $66, 974.77 (Ether /zigman2/quotes/108573964/realtime ETHUSD -4.21% on the Ethereum blockchain also notched a record), according to CoinDesk.
But is buying a bitcoin ETF worth it — especially one that is futures linked and not spot?
That is the question some members of the investment community might be wrestling with since the fund launched Tuesday. With the expectation that there are more such products on the horizon, we’ll explore the pros and cons of investing in a bitcoin ETF — and we’ll even explain to what the term “spot” refers and what futures are.
In any case, please send tips, or feedback, and find me on Twitter at @mdecambre to tell me what we need to be jumping on.
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|Top 5 gainers of the past week||%Performance|
|Amplify Transformational Data Sharing ETF /zigman2/quotes/204122720/composite BLOK||7.3|
|Global X Copper Miners ETF /zigman2/quotes/200953483/composite COPX||6.6|
|Global X FinTech ETF /zigman2/quotes/204444830/composite FINX||6.5|
|iShares Semiconductor ETF /zigman2/quotes/209255350/composite SOXX||5.9|
|VanEck Semiconductor ETF /zigman2/quotes/200571902/composite SMH||5.9|
|Source: FactSet, through Oct. 20, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater|
…and the bad
|Top 5 decliners of the past week||%Performance|
|KraneShares Global Carbon ETF /zigman2/quotes/219806069/composite KRBN||-3.7|
|iShares MSCI Brazil ETF /zigman2/quotes/208893627/composite EWZ||-3.6|
|Global X Russell 2000 Covered Call ETF /zigman2/quotes/211352726/composite RYLD||-1.7|
|U.S. Global Jets ETF /zigman2/quotes/207744796/composite JETS||-1.4|
|VanEck Merk Gold Trust /zigman2/quotes/205869005/composite OUNZ||-1.3|
I’m not buying, you’re buying
The actively managed ProShares Bitcoin Strategy ETF /zigman2/quotes/230440344/composite BITO -10.41% offers exposure to bitcoin without having to worry about “storage,” using so-called private keys and/or digital wallets. Its debut is a watershed moment for crypto — and all that jazz.
On Friday, the Valkyrie Bitcoin Strategy ETF /zigman2/quotes/230473388/composite BTF -10.34% , which also is based on futures, is slated to make its debut, using the ticker symbol “BTF,” on the Nasdaq Inc. /zigman2/quotes/205547889/composite NDAQ -1.69% , Other similar products are on the way, including from the VanEck Bitcoin Strategy ETF, ticker symbol “XBTF, ” which could also launch at the week’s end on Cboe Global Market’s /zigman2/quotes/208166986/composite CBOE -1.88% BZX Exchange.
However, the new offerings raise a host of questions: Is an ETF the best way to own bitcoin /zigman2/quotes/31322028/realtime BTCUSD -2.64% ? What is a bitcoin futures ETF? Can’t I just invest in another crypto-pegged fund or the Grayscale Bitcoin Trust /zigman2/quotes/203330852/composite GBTC -11.82% ?
Gil Luria, technology strategist at D.A. Davidson, told MarketWatch in a Wednesday interview that the first thing to consider, as with any investment, is your risk tolerance and your objectives.
“Crypto assets, including bitcoin, are highly speculative and people should invest only what they are willing to lose and only a limited percentage of their portfolio,” Luria said.
You’ve probably heard that drill before but it bears repeating when it comes to digital assets.
The 12-year-old sector, however, now commands greater attention, boasting a record-setting $2.6 trillion in assets, according to CoinMarketCap.com, compared with some estimates for the gold market at around $12 trillion.
The tech strategist also said that arguably the best, most cost-efficient way to own bitcoin or other crypto is directly and said that exchanges like Coinbase Global /zigman2/quotes/225893452/composite COIN -13.38% , PayPal /zigman2/quotes/208054269/composite PYPL -5.62% ’s Venmo, Square Inc. /zigman2/quotes/205989440/composite SQ -7.43% , Robinhood Markets /zigman2/quotes/228268942/composite HOOD -5.19% and even traditional brokerages like Interactive Brokers Group /zigman2/quotes/208880397/composite IBKR -4.06% offer relatively low-cost ways for the virtual-asset inclined to quench their bitcoin fix.
So, in that respect, Luria’s not a fan of buying something indirectly what you can purchase directly. That is not to say that there isn’t appetite for bitcoin in an ETF wrapper.
The ProShares bitcoin became the second-most heavily traded fund launch on record, with more than 24 million shares changing hands on Tuesday and it has topped $1.2 billion in assets after a mere two days of trading.
Indeed, the bitcoin futures ETF was approved by the Securities and Exchange Commission last week, months after the head of the U.S. regulator, Gary Gensler, suggested over the summer that he would be receptive to approving a futures-linked bitcoin ETF because he says it offers better investor protections than an ETF that is backed by spot crypto.
The term “spot” refers to buying and owning the asset directly as opposed to via futures, which provides indirect ownership of an underlying asset like crude oil /zigman2/quotes/211629951/delayed CL.1 -2.38% or gold /zigman2/quotes/210034565/delayed GC00 -0.35% .
Advocates of bitcoin have been waiting for a spot bitcoin ETF because they think it is a better way to own crypto than through a derivatives product.
“One of the main problems is it is a futures ETF and not a spot ETF,” said Morgen Rochard, a financial adviser who has an expertise in crypto, referring to the ProShares offering.
A key criticism of a bitcoin futures ETF is that managing futures contracts can be costly, compared with direct ownership.
“The problem with futures is people don’t how futures work,” Rochard said.
Futures are derivatives contracts that give a buyer exposure to price moves in an underlying asset and these contracts usually have monthly expiration dates.