The coming weeks will be a litmus test for futures Bitcoin exchange traded funds (ETFs) in the US as the Securities and Exchange Commission is expected to decide on the fate of their pending spot ETF counterparts.
Two years ago, the ProShares Bitcoin Strategy ETF (BITO) became the fastest ETF to gain $1 billion assets. Currently standing at a $1.4 billion valuation, BITO tracks Bitcoin through futures contracts. However, the landscape is about to shift with the potential approval of spot Bitcoin ETFs, which could open up cost-effective alternatives for investors.
The Rise of Spot Bitcoin ETFs
SEC faces an ultimatum to approve or deny pending spot Bitcoin ETFs by January 10. These financial instruments have reaped growing interest from both the traditional finance (TradFi) and crypto community following the legal setback of the regulator in its Bitcoin ETF-related lawsuit. Industry insiders believe that regulators might greenlight spot Bitcoin ETFs in early 2024.
Investor Preference Shift
The industry is expected to pivot from the futures-based to spot-based Bitcoin ETFs—upon approval. While the former retains short-term trading utility, long-term investors and financial advisers may lean towards the latter said WisdomTree Head of Digital Assets Will Peck.
Regulatory Hurdles and Investor Caution
Presently, US regulators are wary about the risk of market manipulation in spot Bitcoin ETF markets. These are further exacerbated by the token’s illiquidity. Despite these reservations, proponents of spot Bitcoin ETFs are pushing the idea that the absence of intermediary in the model of spot Bitcoin ETFs as opposed to the nature of futures contracts is an advantage that could outweigh the perceived risks.
On the other side of the fence, some industry experts believe that both futures and spot ETFs can actually coexist. ProShares CEO Michael Sapir says the support of the Commodity Futures Trading Commission (CFTC) as well as other TradFi institutions towards futures-based Bitcoin ETFs will keep them appealing to investors.
The Battle for Market Differentiation
The torrent of spot Bitcoin ETF approvals, including those by powerhouses BlackRock, Ark Investment Management, Fidelity, and Invesco are sure to sway interest from their futures-based versions. Their simultaneous approval could threaten the relevance of Bitcoin ETFs on various fronts, including brand differentiation, distribution strategies, and fees. The exemption of spot Bitcoin ETFs from the levies of futures Bitcoin ETFs is anticipated to be a major selling point for investors.