"Backwardation" Will Allow Bitcoin Futures ETFs to Buy The Dip

With bitcoin slipping below $50,000 recently, futures-focused exchange-traded funds (ETFs) like the Valkyrie Bitcoin Strategy ETF (BTF) will be able to purchase the leading cryptocurrency as it dips and exhibits “backwardation.”

Backwardation refers to a market condition in which future contract prices on a commodities exchange are lower than short-term prices. In essence, markets are expecting future price declines in that contract’s underlying asset.

In the case of bitcoin, its price has seen recent declines that date back to the post-Thanksgiving meltdown in the equities market when the Omicron variant revealed itself. Given the current 24-hour news cycle, it doesn’t take long for news to hit the stock market, and it did so in a big way — the Dow Jones Industrial Average fell by over 900 points.

In the cryptocurrency market, bitcoin also saw sell-off pressure as risk-averse investors headed for the exit signs from volatile assets. Other cryptocurrencies soon followed in a mass sell-off, which is still continuing through 2021.

According to coinmarketcap.com, bitcoin has lost about 4% within the past week. This comes after the leading cryptocurrency touched a new all-time high just a couple months ago, but the recent dip can come as a value proposition for investors looking to buy the dip.

In particular, ETFs that focus on bitcoin futures can roll into new positions at the current lower prices. Retail investors can tail this action by dollar cost averaging into the current prices with the expectation that 2022 will exhibit more bullishness just as it has so far in 2021.

Bitcoin Price Chart

Muting the Volatility With a Bitcoin Futures ETF

As mentioned, ETF exposure can help investors dip their toes into the cryptocurrency space without having to fully dive into digital currencies, especially if they’re spooked by the recent downturn. ETFs that expose investors to bitcoin futures can capture the upside in the bullishness of bitcoin without getting exposed to the fluctuating price movements — in this case, BTF.

BTF is an actively managed exchange traded fund that seeks to achieve its investment objective by investing all or substantially all of its assets in exchange traded futures contracts on bitcoin and “collateral investments.” The fund will not directly invest in bitcoin. Under normal circumstances, the fund will seek to purchase a number of bitcoin futures contracts so that the total notional value of the bitcoin underlying the futures contracts held by the fund is as close to 100% of the net assets of the fund as possible.

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