Futures may be the hot new thing in the crypto ETF space, but investors interested in the sector would be wise to look at funds like the Bitwise Crypto Industry Innovators ETF (BITQ) or the VanEck Digital Transformation ETF (DAPP) for purer plays.
The futures-based ETFs are exciting and appealing for a number of reasons. The Proshares Bitcoin Strategy ETF (BITO) was the fastest ETF ever to reach $1 billion in assets under management. The Valkyrie Bitcoin Strategy ETF (BTF) launched a few days later. These ETFs are huge milestones for the sector and compelling investment options, but futures contracts are not the same thing as spot price. Though these funds are new and exciting, there are fantastic funds that have been big players in the space for longer, such as BITQ, that offer more direct exposure to cryptocurrency simply by investing in companies that make their income through crypto.
Both BITQ and DAPP have holdings in companies like Coinbase (COIN), Marathon Digital Holdings (MARA), and Canadian miners HUT 8 (HUT). Coinbase is a digital wallet company, and currently the most downloaded app on the app store. BITQ has it weighted at 11.33%, its largest holding; DAPP has a weighting of 8.36%. Meanwhile, digital asset company Marathon, which is on the cusp of breaking even, comprises 5.41% of BITQ’s portfolio and 7.03% of DAPP’s.
These are exciting companies with the potential to grow tremendously as cryptocurrency moves from a curiosity to a mainstream factor in everyday life.
Futures Have Risk
The crypto space is still volatile. Futures contracts are also volatile. Risk-adverse investors may find it challenging to stomach volatility piled on top of volatility.
Thanks to SEC regulations, futures also have diluted exposure. A bitcoin futures ETF can only copy exposure to bitcoin up to 85%. The remaining assets must be placed elsewhere.
Futures contracts can also be expense. As contracts come due, the need to be rolled over. In contango situations, this can be particularly pricey as the next month’s contracts are going to increase in price — and all of this is before the actual baseline fund fees.
There are certainly plenty of investment cases for bitcoin futures ETFs, but investors should also consider other types of exposure to the space.
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