Lately, issuers and regulators alike have had futures on the brain. Last month, SEC Chair Gary Gensler said in remarks at the Aspen Security Forum that the SEC would look more favorably on Bitcoin ETFs dealing with Bitcoin futures, as opposed to funds which plan to hold bitcoin directly.
But what are futures, and how are they different from dealing with assets directly?
Futures primarily provide investors with a way to speculate on the price movement of a particular asset. They are essentially a contract, wherein one party agrees to buy a certain asset or security at a particular date for a specific price.
When the contract expires, the buyer must pay for and receive the asset. However, futures contracts can be bought and sold up to the date of expiration. Often investors will do what is called “rolling,” selling a futures contract before expiration and then buying another.
Rolling provides a way for speculative investors and traders to gain exposure to the price of a particular asset without needing to own the actual asset.
There are numerous types of futures available in the U.S. via the Chicago Mercantile Exchange (CME). There are futures contracts for a variety of assets including energy like crude oil and gas, agricultural products like corn, and currencies like the Euro or Yen.
Bitcoin futures have been available to trade since December 2017, but only recently has there been major interest in funds engaged in the Bitcoin futures space.
The Bitcoin Strategy ProFund
Although no Bitcoin futures ETFs have been approved by the SEC, mutual fund provider ProFunds launched the first Bitcoin futures mutual fund — The Bitcoin Strategy ProFund (BTCFX) — at the end of July.
BTCFX invests primarily in Bitcoin futures contracts, specifically “front month” contracts, which are the closest to expiration and therefore the most liquid and the closest to an asset’s spot price.
The fund does not directly hold bitcoin and is instead designed to make it easier for investors to incorporate crypto into their portfolios by providing exposure to front month Bitcoin futures contracts, which closely align to the spot price of Bitcoin.
ProFunds, with its affiliate ProShares, has managed innovative funds since its inception and was notably the first issuer to launch leveraged and inverse ETFs in the U.S. in 2006. Today, ProFunds manages just under $60 billion in assets for investors.
ProShares filed with the SEC to launch a Bitcoin Strategy ETF invested primarily in Bitcoin futures in August, however, the regulator has yet to announce a decision on any of the numerous crypto asset ETFs currently under review.
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