Caitlin Cook: What to Know About Bitcoin Futures ETFs in 2022

Caitlin Cook

Few FinTwit folks know more about crypto than Caitlin Cook. As the head of community and vice president of operations at Onramp Academy, a crypto asset education platform geared for financial advisors, Cook spends her days answering tough crypto questions and guiding advisors and investors through the ins and outs of the digital asset space.

Recently, ETF Trends’ managing editor Lara Crigger sat down with Cook to delve deep into what advisors need to know about bitcoin — and specifically bitcoin futures ETFs, including differences between futures and spot exposure and the often-overlooked roles crypto can play in a portfolio.

Be sure to join us at in April in Miami, where Cook will be taking the stage to get deep into what today’s advisors need to know about crypto investing.

Lara Crigger, managing editor, ETF Trends and ETF Database: Tell our readers a little about Onramp Academy and your role there.

Caitlin Cook, head of community and vice president of operations, Onramp Academy: Onramp is an integration platform-as-a-service, providing three things to independent financial advisors, with education being the first, through Onramp Academy. We also offer access to the crypto asset markets on behalf of clients, and tools for analyzing where you’d put crypto within a portfolio, including integrations with different portfolio management software, CRMs, the whole deal. It’s a very streamlined process for advisors who want to get their clients exposure.

Onramp Academy is a really big component, because there’s a lot of news about crypto, and a lot of misconceptions and opinions flying around, but it’s hard to keep track of the facts. It’s hard for advisors to water all that down into what actually matters to their practice, and what their clients are going to be asking about, so that they can actually implement crypto within their broader business, if they choose to.

Even if advisors aren’t super happy about the idea of crypto — they’re not necessarily buying into it or have clients coming to them proactively — we very strongly believe that they have a fiduciary responsibility to at least know what’s going on in the markets and keep up-to-date on new trends and happenings. The number of accounts opening at these different crypto exchanges are skyrocketing. Whether they know it or not, it’s likely that some of their clients either have or are buying crypto. Whether that’s a small allocation, or one that’s grown over time, they need to be ready. No advisor wants to have a client walk into the room that knows more than them in an asset class they’re being trusted to have expertise over. So education is a really important part of what we’re doing with crypto.

Crigger: What’s the knowledge base of the average advisor using Onramp Academy? Are they crypto-bulls themselves who are looking for ways to evangelize to their clients? Or are they advisors who may be less experienced with crypto but who need the information, because their clients are approaching them about it? 

Cook: We’re a young company, but many of our first movers were people who knew a little bit more about crypto, who were doing the research on their own, whether they were invested personally or just curious. But we’ve seen such growth of interest in the space, especially from advisors, in the past six months. Now many people are closer to that beginning stage of, “Where do I even start?”

Like I said before, there’s just so much information out there that it’s really overwhelming. It’s information overload. Many of the people we speak with now might know a little about what blockchain is, or bitcoin, but they may not have decided how best to implement this on behalf of their clients, or the difference between public and private keys, different types of storage, and so on.

Crigger: You brought up a good point that there’s been a lot of misinformation and hype. Certainly the launch of the first bitcoin futures ETFs may have intensified that. What are some of the biggest misunderstandings you’ve seen and heard so far?

Cook: The biggest one, about bitcoin futures ETFs specifically, is that they’re even being called bitcoin ETFs! I think that’s the single biggest point of confusion for investors, because they’re not bitcoin ETFs. You’re not owning bitcoin by owning this ETF. You’re getting exposure to the futures market. But people see “bitcoin” and “ETF” and get really excited.

From a media standpoint, the funds have definitely been positioned in a way that could be easily misinterpreted.  There’s been a lot of talk about the possibility of a physical ETF too, and I’m more of a proponent of having a spot ETF, for many reasons. It’s a whole different ballgame, getting exposure to the futures market rather than just getting exposure to the crypto assets market.

When you have a volatile asset in itself, like crypto, and you put that into an already-volatile futures market, outside the scope of a ’40 Act fund, and which can implement a lot of leverage — also making it riskier — and then you put that into a retail-friendly package without giving investors that background information on what it really entails… I think it could be dangerous. It’s not necessarily the best course of action for many retail investors. Because that’s probably not suitable within the risk tolerance that they have.

Crigger: Can you drill deeper into the different returns offered by the futures market vs. spot bitcoin?

Cook: Taking a step back, when you talk about futures and futures-based ETFs, you have to look at where yield comes from. Futures returns are made of that spot price, cash yield, and roll yield; when you have futures contracts [in an ETF], you’re not allowed to receive physical bitcoin at expiration. You have to continue rolling over your contracts to a later date, rolling them from your short-term contracts into a longer one benefiting from the convergence of that futures price towards a higher spot price. But that yield can go negative. That’s something investors should consider.

The word “contango” specifically gets thrown around a ton. That is when the future price of whatever the instrument is higher than the spot price of that asset at a given point in time. Opposite of contango is “backwardation.” But, when contango is present, the spread between the spot price of the asset and the futures price is sort of like a convenience tax for investors who want to invest in the derivative rather than buying that underlying asset or buying bitcoin itself. And that’s not just a one-time tax. It compounds over time. So that number just gets bigger and bigger.

Crigger: Is contango the main reason why you’d prefer a physical ETF over a futures-based one? What advantage exists in a spot bitcoin ETF compared to the futures version?

Cook: As a net whole, I think that a futures ETF being approved is a positive for the space. You’re giving investors exposure to that market in packages that they’re familiar with. Whether or not a futures ETF is a more responsible choice to approve before a spot ETF…

Crigger: Gary Gensler and co. argued that this was about investor protections. Futures contracts are well-understood instruments with investor protections baked in.

Cook: Which is… interesting. With spot ETFs, when we talk about investor protections, it is much easier to understand the concept of a physical or spot ETF. You own an ETF. ETFs are vehicles that provide easy access for retail investors to different assets. They’re very liquid. That’s something that most people hopefully understand at this point with how long ETFs have been around and the number of products available. I think that’s much more simple to understand than trying to explain the futures market to the average investor.

Plus, with a spot ETF, you’re actually giving investors access to bitcoin! They own bitcoin. They have access to that underlying asset directly in that vehicle. That’s the most important differentiation. I think that it could get really messy trying to get people to understand the difference between the two when the futures one is the first one that launched.

Around the investor protections part, I do that it’s kind of a backwards decision to say that you’re going for investor protections, then approving a futures ETF before a spot. Because [futures] are not a suitable investment for most retail investors.

At Onramp, we fully understand that, like any other asset, crypto is not going to be a fit for everyone. We all have a separate risk tolerance and what we’re willing to accept, and what we’re willing to HODL onto over the long-term throughout the volatility. So not every investor should own bitcoin. But also, most investors on the retail side should not have exposure to the futures market. It’s just volatile, and it’s a lot of risk involved. For people who are investing their life savings or trying to build a nest egg, I don’t think that’s in the best interest of investor protections at all.

Crigger: What are your thoughts about a spot ETF as compared to just opening a Coinbase account and getting access to the underlying asset directly?

Cook: I think the more vehicles that we provide for investors to get access, it’s a positive for the space. Because even if an investor starts out by owning a spot ETF, they might go and do more due diligence on the crypto space, see that direct ownership might be the better vehicle for a variety of reasons, and then go from there. I think it opens up a lot of doors. It opens up a lot of conversations and gives people that easy access that they’re looking for in a package that’s familiar. So that’s totally fine. And I think that there’s certainly a place for that.

That being said, I personally believe that direct ownership is the best way to access this market for a lot of reasons. When you look at why the decentralized finance space came to be at all, there are a lot of things that it’s providing versus traditional markets that are different. When you put that back into a traditional package like an ETF, it’s sort of like putting training wheels in a Ferrari. You have this really sophisticated technology that’s new, modern, liquid, available 24/7 — and you put it back into this traditional packaging, with traditional market hours, traditional kind of regulatory landscape and different procedures within the industry that we’re used to. So, it sort of takes away a lot of the benefits that decentralized finance and crypto assets provide. I do think it’s a bit backwards in that sense.

But, again, I do think that there’s a place for an ETF, just to give more people access. For financial advisors right now, the regulatory environment isn’t clear to them. They’re walking on glass trying to decide how to approach the space within their organization and the constraints that they have. An ETF is a much easier solution for them. They’ve dealt with ETFs before. They know what they’re getting; they have the green light to invest in a product packaging like that. And they don’t have to jump through the hoops of direct ownership: What are you doing with the private keys? What type of wallet are you using? Why are you using it? And so on.

I also think retail investors, I think it’s an easy way for them to dip their toes in. It’s a lot to learn right now with crypto, it’s really overwhelming. So an ETF provides a way for them to get access without taking on total autonomy, having that full ownership of the assets and being responsible for them. It’s an easier way for them to get started and will incentivize them to learn more. Because once you own something and once you’re invested in something, you have more of an incentive to follow it, and you have more of an incentive to learn about it.

Crigger: Speaking of access, crypto has been discussed often as a tool of financial inclusion, broadening out the ability to invest to communities and folks who have traditionally been locked out of financial spaces. Do you agree with that?

Cook: Yes. A really important thing about the technology is that you can transfer funds anywhere around the globe, pretty much automatically. You don’t need to go to a bank branch, you don’t need to go do the paperwork to get approved for financing the same way that you would have before. I know [Onramp CEO Tyrone Ross] always talks about the payday loans — being able to walk to a shop, really needing money at that time, and then having to pay back some ridiculous yields. Crypto avoids that. That’s a really important thing.

This opens up a lot of doors to globalization and finance as a whole, where you can interact. Try right now to wire money to someone in Africa right now. The process is so painful. We’ve had these legacy technology setups for a long time, and nothing substantially has changed to make it easier. There are a lot of fees associated, there’s a lot of time that it takes to get those funds transferred. This eliminates that, opening up the floodgates for anyone to be able to get access to funds at any time they want in seconds. I think that’s super, super powerful — not needing to have access to that bank branch or different bank accounts to do wire transfers to people and to get funds.

I don’t think that we talk about that enough with the power of this technology, because people just see it as an investable asset. But bitcoin, specifically, has a potential as actual cryptocurrency that can be used as a medium of exchange and as money.

Crigger: What are advisors overlooking about crypto?

Cook: We see so much news about all the price movements and all the different products that are out there, yet  we don’t really focus enough on the education aspect of it. Especially on the retail investor side, it’s easy to get caught up in like the FOMO of not owning an asset that’s in the news all the time. But there’s just not enough education being put out there publicly. That’s something that we’re trying to do with Onramp Academy, is just get people to have a strong understanding of the basics.

So, I think we need to back it up and stop worrying about the intraday pricing — unless you’re deeply into the trading aspect of it — and just start with the basics and the fundamentals of crypto. I think that we need to focus on that, first and foremost, especially for financial advisors, so they can help their clients, too. There’s a wide variety of knowledge bases that people have, and a lot of people are probably more towards the entry level right now.

For more news, information, and strategy, visit the Crypto Channel.