Why Products Holding Bitcoin Futures Are Different Than Products Holding Bitcoin

Since SEC Chair Gary Gensler indicated that the regulator might look more favorably on investment vehicles tied to Bitcoin futures, as opposed to products planning to hold bitcoin directly, numerous issuers have submitted proposals to launch their own Bitcoin futures ETFs. 

But why might the SEC look more favorably on futures-based products? 

The simplest answer is that Bitcoin futures have more regulatory oversight than bitcoin because Bitcoin futures are products of already-regulated entities, rather than a decentralized network. 

Who Regulates Bitcoin Futures? 

Products tied to Bitcoin futures hold Bitcoin futures contracts, which are traded on the Chicago Mercantile Exchange and regulated by the Commodity Futures Trading Commission. 

The CFTC is currently one of the only entities regulating cryptocurrency in the United States. 

Although digital assets still exist in a murky regulatory space — it’s still up for debate whether digital assets are commodities or securities or something else — CFTC commissioner Dawn Stump has basically said that it doesn’t matter as far as her agency is concerned. 

According to Stump’s statement last month, the CFTC does not regulate commodities. Instead, the commission primarily oversees futures contracts and derivatives products, including derivatives on digital assets. 

The regulator has enforcement authority over the products it regulates, meaning that it does oversee trading platforms offering derivatives on digital assets and can — and will — take action against unregistered platforms or those violating CFTC trading rules. 

Additionally, the CFTC’s enforcement authority “includes a broader application for anti-manipulation and anti-fraud authority with respect to cash commodities (although the CFTC does not regulate those commodities).” 

So while the CFTC cannot regulate the Bitcoin market or the Bitcoin network, it can regulate any digital asset derivatives and the platforms which offer them and use its enforcement authority to deter manipulation and fraud involving cash digital assets. 

The CFTCs involvement in Bitcoin futures products therefore provides a layer of investor protection not present in products holding bitcoin directly. 

Investing in Bitcoin Futures With BTCFX

While the SEC has yet to approve any Bitcoin ETFs, futures-based or otherwise, mutual fund provider ProFunds launched the first publicly available Bitcoin futures mutual fund in the U.S., the Bitcoin Strategy Profund (BTCFX), at the end of July. 

BTCFX invests in “front month” contracts, futures contracts which are closest to expiration and therefore the closest to bitcoin’s spot price. BTCFX provides investors exposure to bitcoin via Bitcoin futures contracts in a more convenient and less volatile format than buying bitcoin directly. 

While numerous issuers, including ProFunds affiliate ProShares, have filed for Bitcoin futures ETFs, the SEC has yet to make a decision on any of the digital asset products currently under review.

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