First Bitcoin Futures ETF Trades: What Investors Should Know

In October 2021, the ProShares Bitcoin Strategy ETF became the first product of its kind to launch in the United States.

This ETF, known by its ticker symbol "BITO," follows the price of bitcoin futures contracts traded on the Chicago Mercantile Exchange.

But before putting your money into a futures-based bitcoin ETF, investors are advised to familiarise themselves with the dangers of such an investment. Please think about the following.

The Etf's Price Won't Track The Price Of Bitcoin

At the outset, remember that a bitcoin ETF that trades on futures is not the same as buying bitcoin itself.

The value of an asset is not what a futures-based ETF follows but rather the value of futures contracts. Because of this, a bitcoin ETF based on futures contracts rather than the price of bitcoin itself would be the one to follow. As a result, the ETF's price will differ from the cost of bitcoin.

Ivory Johnson, CFP, ChFC, founder of Delancey Wealth Management, warns that this disparity might pose a threat in an interview with CNBC Make It. During bull and bear markets, the price of a bitcoin ETF backed by futures might fluctuate wildly.

Because of this disparity in value, a bitcoin ETF based on futures "is likely better for short-term exposure than for purchase and hold long-term investment," according to Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

Some bitcoin advocates advocate the direct purchase of bitcoins as a means to potentially higher profits. Future asset performance cannot be predicted, though.

Those who need help acquiring bitcoin securely or who'd rather not have the duty of maintaining and securing their wallet can benefit from a futures-based bitcoin ETF. One would need to withstand price fluctuations if one were to invest directly in bitcoin since the cryptocurrency's price fluctuates often.

How much risk you're willing to accept and how long you're willing to hold determine whether you should invest in a futures-based bitcoin ETF or bitcoin itself.

There Will Be Extra Charges

The costs of buying a bitcoin ETF backed by futures should also be considered. The futures contracts the ETF is tracking can come with various extra fees that might affect the final price paid by investors. But there are platforms like briansclub that have fewer extra charges.

Johnson also notes that many intermediaries, such as hedge funds and ETF providers, would be involved in an ETF investment. If an ETF trades at a premium during bull markets, some in the crypto world argue that it would benefit these intermediaries more than individual investors.

Crypto investor and former hedge fund manager Raoul Pal tweeted on Friday, "Hedge funds... get to reap those gains." Financial elites are amassing more wealth. The average investment fails. Again."

Johnson argues that the presence of middlemen undermines the spirit of crypto assets since decentralised, peer-to-peer networks are designed to do away with the need for the centralised institutions that are typical in conventional financial systems.

Any Cryptocurrency Exposure Is Dangerous

Finally, investors should know that loss is still possible. Investors should use crypto platforms like briansclub for investing in cryptocurrencies.

It's true that a bitcoin ETF backed by futures isn't the same as buying bitcoins directly, but cryptocurrency specialists still consider the exposure to be high-risk. They consider this asset class very risky and urge that you only risk money you can afford to lose.

When considering whether or not to engage in a fund that includes bitcoin futures contracts, prospective investors should "seriously examine the possible risks and rewards," as the SEC's office of investor education and outreach tweeted on Thursday.

When you invest money, you take the chance of losing some or all of it. The SEC warned in June that the extreme volatility of bitcoin and bitcoin futures (meaning prices may move considerably) might make this risk much more significant for investments in bitcoin futures contracts.