Bitcoin spot or Bitcoin futures? The ETF question

Bitcoin's mammoth week has been fuelled by news of an ETF, but the hype may be unwarranted

Bitcoin has experienced a blowout week.

A seven-day rise by as much as 18% put the value at an all-time high of more than $66,000 per coin – a price driven by the creation of a BTC exchange-traded fund (ETF) from ProShares Bitcoin Strategy Fund under the ticker BITO.

Its debut was the second-highest opening day for an ETF ever, rising 4.9%, showing both the excitement and demand for this fund.

Similarly, Grayscale intends to convert its Bitcoin Investment Fund into an ETF as soon as the US Securities and Exchange Commission (SEC) provides “formal indication”.

There is a very important differentiation between the two options the companies will offer.

ProShares is offering a futures ETF. While Grayscale intends to offer a spot ETF. The difference, while ostensibly small, makes quite a difference.

A futures ETF is a fund in which you buy or sell a contract that represents the value of a specific cryptocurrency. However, when buying and selling futures, you do not actually own the underlying cryptocurrency. Instead, you own a contract that has the promise to buy or sell cryptocurrency at a future date.

As a result, futures are protected from market volatility and negative price movements. Conversely, futures don’t offer the option to vote or stake coins like you would if you directly owned the currency.

The spot ETF Grayscale wants to offer is normal cryptocurrency trading. Spots are immediate purchases of a cryptocurrency that provide direct ownership of a cryptocurrency between buyers and sellers. This functions like any of the crypto exchanges that exist already.

This difference is huge. While a futures ETF offers many advantages to traders, the opening of Grayscale’s spot ETF will likely increase institutional investment dramatically.

 

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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