Spot Bitcoin ETFs Could Threaten Futures-Based Funds
Introduction
Spot bitcoin exchange-traded funds (ETFs) are seen as a potential threat to futures-based funds that came before them. BlackRock Inc and Grayscale Investments are among the firms awaiting approval for the first US ETFs linked to the spot price of Bitcoin.
Spot-Based Funds vs Futures-Based Funds
- Spot-based funds track the price of Bitcoin more closely and at a potentially lower cost.
- Bitcoin futures-based funds debuted in October 2021 but have since leveled off at about $1 billion in market value.
- Analysts believe spot-based funds are superior products and attract new investors looking for long-term investments.
- If approved, the US spot bitcoin ETF market has the potential to grow into a $100 billion industry.
Futures-Based Funds Lag Behind
Futures-based ETFs, such as the ProShares bitcoin strategy ETF, have not performed as well as Bitcoin itself. The lag can be attributed to specific futures contracts held by the ETFs and the associated expenses of rolling them over.
Potential Outflows and Migration
If spot-based ETFs are approved, futures-based ETFs may experience significant outflows. Spot ETFs are more likely to reflect real-time supply and demand, potentially causing a migration of trading activity and liquidity away from bitcoin futures markets.
Fierce Competition and Lower Fees
Spot funds may offer lower fees compared to futures-based funds. In the competitive ETF market, lower fees could be a differentiating factor for spot ETFs. Investors are likely to choose spot ETFs unless they specifically need leveraged or inverse products.
Conclusion
The approval of spot bitcoin ETFs could revolutionize the market and pose a threat to futures-based funds. The competition among issuers is expected to be fierce, with lower fees becoming a key factor in attracting investors.
