Since the beginning of August, numerous issuers have filed with the SEC to launch Bitcoin futures ETFs, including Invesco, ProShares, VanEck, Valkyrie, and Galaxy Digital.
The onslaught of filings for Bitcoin futures products came after SEC Chair Gary Gensler indicated in remarks at the Aspen Security Forum that the regulator might look more favorably on ETFs invested in futures, rather than funds planning to hold crypto assets directly.
But how are Bitcoin futures different from just holding bitcoin?
Products which hold bitcoin directly provide exposure to the market price of bitcoin. Products which hold Bitcoin futures provide exposure to the price of Bitcoin futures and allow investors to speculate on the future market price of bitcoin.
Bitcoin futures contracts are traded on the Chicago Mercantile Exchange and are standardized agreements to buy or sell an amount of bitcoin at a specific price. The CME introduces new contracts each month with a duration of six months. All CME Bitcoin futures are cash-settled.
Cash settled-contracts are contracts that end with the delivery of cash, as opposed to a physical asset like corn or crude oil. The cash settlement for Bitcoin futures is determined by the CME CF Bitcoin Reference Rate.
The Bitcoin Reference Rate is a once-a-day reference rate calculated as the volume-weighted average of the price of bitcoin in U.S. dollars across five major exchanges as of 4 p.m. London Time.
Bitcoin futures make it easier to invest in the Bitcoin space, as investors do not have to hold and store the bitcoin themselves.
Investing in Bitcoin Futures
Although the SEC has yet to approve a Bitcoin futures ETF, mutual fund provider ProFunds launched the first publicly available Bitcoin futures mutual fund in the U.S. at the end of July.
The Bitcoin Strategy ProFund (BTCFX) provides investors with exposure to Bitcoin futures and makes it easier for investors to include crypto in their portfolios.
BTCFX invests specifically in “front month” contracts, contracts which are closest to expiration and therefore the most liquid and closest to bitcoin’s spot price.
ProFunds affiliate ProShares is one of several issuers to have filed for a Bitcoin futures ETF, although the SEC has yet to make a decision on any of the twenty-odd digital asset products currently on its desk.
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