Bitcoin and ether futures exchange-traded funds (ETFs) enable retail and other investors exposure to cryptocurrencies without directly holding them. These ETFs offer shares in baskets of either Bitcoin or ether futures contracts.
Investors can buy shares of these ETFs on traditional stock exchanges—a regulated and convenient, though indirect, way to speculate on the price moves of these cryptocurrencies.
Key Takeaways
- Bitcoin and ether futures ETFs deliver exposure to the price of these cryptocurrencies by holding futures contracts that track their currency price.
- Key differences between Bitcoin and ether futures ETFs include the underlying blockchain technology, the specific purposes of each cryptocurrency, and the amount of liquidity.
- Several advantages of Bitcoin and ether futures ETFs include their accessibility, their place in regulation markets, portfolio diversification, and institutional adoption.
- Key disadvantages of Bitcoin and ether futures ETFs include their reliance on futures contracts, tracking errors, increased volatility, and lower liquidity.
- Bitcoin and ether futures ETFs are different from spot ETFs, which directly own the underlying cryptocurrency.
The ETFs—a type of exchange-traded product (ETP)—derive their value from the performance of bitcoin and ether futures traded on the Chicago Mercantile Exchange (CME), and investors can have a stake in their price direction without holding the physical assets. These ETFs offer a more familiar investment product for traditional market participants.
What Are Bitcoin Futures ETFs?
Bitcoin futures ETFs seek to track the performance of Bitcoin futures contracts traded on the CME. Importantly, the fund does not hold bitcoins. The ETFs enable investors to speculate on Bitcoin’s future price moves without directly owning the cryptocurrency.
Unlike spot Bitcoin ETFs, which hold the asset, futures-based ETFs use contracts where investors agree to buy or sell Bitcoin at a predetermined price in the future. This introduces an element of leverage and risk, as gains or losses are magnified based on the price trends of the underlying futures contracts.
The first bitcoin futures ETF to gain regulatory approval from the U.S. Securities and Exchange Commission (SEC) was the ProShares Bitcoin Strategy ETF (BITO) on Oct. 15, 2021.
Below are the three largest bitcoin futures ETFs in terms of assets under management (AUM).
ProShares Bitcoin Strategy ETF (BITO)
- Performance over one year: 81.03% (as of Jan. 18, 2024)
- Expense ratio: 0.95%
- Annual dividend yield: 8.79%
- Three-month average daily volume: 19,448,875
- AUM: $1.85 billion
- Inception date: Oct. 18, 2021
- Issuer: ProShares
VanEck Bitcoin Strategy ETF (XBTF)
- Performance over one year: 77.3% (as of Jan. 18, 2024)
- Expense ratio: 0.66%
- Annual dividend yield: 0.18%
- Three-month average daily volume: 39,940
- AUM: $50.94 million
- Inception date: Nov. 15, 2021
- Issuer: VanEck
Simplify Bitcoin Strategy PLUS Income ETF (MAXI)
- Performance over one year: 86.3%
- Expense ratio: 11.18%
- Annual dividend yield: 273%
- Three-month average daily volume: 16,645
- AUM: $33.4 million
- Inception date: Sept. 29, 2022
- Issuer: Simplify
The Securities and Exchange Commission approved the first 11 bitcoin spot ETFs in January 2024. Unlike futures ETFs, these funds invest directly in the underlying cryptocurrency. As of January 2024, the SEC has yet to approve an Ethereum spot ETF.
What Are Ether Futures ETFs?
Ether futures ETFs are structured like Bitcoin futures ETFs: They both aim to track the performance of cryptocurrency futures contracts traded on the CME, not the underlying asset. Ether funds enable investors to speculate on ether’s price fluctuations without directly owning the digital asset.
Like Bitcoin futures ETFs, ether futures ETFs involve agreements to buy or sell ether futures contracts at a predetermined price in the future, which may magnify profits or losses. Ether futures ETFs furnish a regulated means for investors to gain exposure to ether without the hassles or expense of storing the cryptocurrency securely.
Below are the three largest ether futures ETFs in terms of AUM.
VanEck Ethereum Strategy ETF (EFUT)
- Performance over one year: N/A
- Expense ratio: 0.66%
- Annual dividend yield: N/A
- Three-month average daily volume: 19,111
- AUM: $19.1 million
- Inception date: Oct. 2, 2023
- Issuer: VanEck
ProShares Ether Strategy ETF (EETH)
- Performance over one year: N/A
- Expense ratio: 0.95%
- Annual dividend yield: N/A
- Three-month average daily volume: 48,094
- AUM: $24.9 million
- Inception date: Oct. 2, 2023
- Issuer: ProShares
Bitwise Ethereum Strategy ETF (AETH)
- Performance over one year: N/A
- Expense ratio: 0.85%
- Annual dividend yield: N/A
- Three-month average daily volume: 5,248
- AUM: $4.3 million
- Inception date: Sept. 29, 2023
- Issuer: Bitwise Asset Management
What Are the Key Differences Between Bitcoin Futures ETFs and Ether Futures ETFs?
Bitcoin and ether futures ETFs enable investors to have an indirect stake in digital assets through futures contracts. However, they differ in terms of their underlying assets and blockchain networks. Bitcoin ETFs track the price of Bitcoin, the largest cryptocurrency by market capitalization, while ether futures ETFs are tied to Ethereum’s native token, ether.
Each varies in terms of its underlying blockchain technology and purpose. Bitcoin serves primarily as a decentralized digital currency and store of value, while Ethereum is a versatile blockchain that supports smart contracts and decentralized applications (dApps).
Additionally, the ETFs differ in risk and volatility because of their distinct characteristics. Bitcoin, often considered a digital kind of gold and a hedge against inflation, tends to attract different investor sentiment from ether, which is essential for the Ethereum network’s functionality. From a trading standpoint, Bitcoin futures ETFs turn over substantially more volume than ether futures ETFs, given Bitcoin’s market dominance. Liquidity beyond the top-ranked fund for each decreases substantially, which raises the risk of slippage.
Ether futures ETFs posted trading volumes of less than $2 million on their first day of trading in October 2023. By comparison, the ProShares Bitcoin Strategy ETF registered inflows of about $570 million on its first day of trading in October 2021.
Advantages and Disadvantages of Bitcoin Futures ETFs
Advantages
- Regulatory compliance: Bitcoin futures ETFs are offered within the regulatory frameworks of their markets, making them more palatable to institutional investors. Regulatory oversight ensures that these financial instruments adhere to established standards and practices, helping to maintain investor confidence.
- Diversification: When reviewing your portfolio and its asset classes, bitcoin can offer some diversification.
- Accessibility: These ETFs enable a wide range of investors to gain exposure to Bitcoin’s volatility without needing direct ownership or understanding the complexities of securely storing the digital asset. This accessibility, in turn, promotes broader participation in the cryptocurrency market.
- Lower operational risks: You don’t need to negotiate the complexities of holding and securing Bitcoin directly.
- Institutional adoption: Bitcoin futures ETFs are traded on traditional markets, allowing institutional investors to invest in Bitcoin, albeit indirectly through futures contracts.
Disadvantages
- Price volatility: Bitcoin is more volatile than traditional asset classes.
- Use of futures contracts: Bitcoin futures ETFs’ reliance on futures contracts introduces complexity and heightened risk. Since their performance correlates to the price of these contracts, investors need to have a sound understanding of futures trading. Factors such as contract expiration, rollover procedures, and the potential for leverage are among those to keep front of mind.
- Tracking errors: Bitcoin futures ETFs may face tracking errors, which occur when the fund’s share values deviate from the spot price of Bitcoin because of fees or an imperfect replication of futures contracts. For instance, if the ETF sets out to mirror a 2% daily return on Bitcoin, it may only achieve a 1.5% return when considering these discrepancies.
Advantages
Regulatory compliance
Diversification
Accessibility
Lower operational risks
Institutional adoption
Disadvantages
Price volatility
Use of futures contracts
Tracking errors
Advantages and Disadvantages of Ether ETFs
Advantages
- Regulatory compliance: Ether futures ETFs are offered within the regulatory frameworks of their markets, making them more palatable to institutional investors.
- Diversification: When reviewing your portfolio and its asset classes, cryptocurrencies like ether could offer some diversification.
- Accessibility: Ether futures ETFs are easily accessible to retail and institutional investors on traditional exchanges.
- Lower operational risks: You don’t need to get up to speed on how to hold and keep secure ether as an asset.
- Institutional adoption: Ether futures ETFs make it easier for institutional investors to obtain stakes in futures that track Ethereum, potentially encouraging wider participation and adoption. These investors, often risk-averse, typically prefer traditional financial products such as ETFs.
Disadvantages
- Less liquidity: Since ether futures ETFs launched in October 2023, they have had far less trading volume than their Bitcoin counterparts. Not only did these ETFs debut later than Bitcoin futures ETFs, but they also were listed during a cryptocurrency bear market, making it more difficult to attract investor inflows. Lower liquidity can hinder the ease of buying and selling ETF shares, potentially leading to higher bid-ask spreads and increased price slippage.
- Price volatility: The underlying cryptocurrency, ether, has been more volatile historically than traditional asset classes and, indeed, Bitcoin. This greater volatility and futures contract exposure increase the likelihood of substantial value changes within the ETFs. Investors must carefully assess their risk tolerance and investment goals when evaluating ether futures ETFs since volatility spikes can result in both rapid gains and losses.
- Use of futures contracts: The model for ether futures ETFs introduces greater complexity. Like their Bitcoin counterparts, those investing must understand the intricacies of contract expiration, rollover procedures, and the potential for leverage since their performance tracks ether futures.
- Tracking errors: These futures ETFs can have tracking errors like their Bitcoin counterparts.
Advantages
Regulatory compliance
Diversification
Accessibility
Lower operational risks
Institutional adoption
Disadvantages
Less liquidity
Price volatility
Use of futures contracts
Tracking errors
Do Ether Futures ETFs and Bitcoin Futures ETFs Have Similar Liquidity?
Liquidity can vary significantly between these two types of ETFs. Bitcoin has been around longer and has broader market adoption. Thus, it has had higher liquidity. Since their debut in October 2023, trading for ether futures ETFs has been far more muted than those for Bitcoin.
Where Can Investors Acquire Ether and Bitcoin Directly?
You have many avenues for buying Bitcoins and ether. Platforms like Coinbase, Kraken, and Binance are well-known choices for purchasing them, and you can do so via bank transfers, credit cards, or other cryptocurrencies. You can also seek out decentralized exchanges such as Uniswap or SushiSwap for peer-to-peer trading of ether.
What Is Cryptocurrency?
Crypto is a digital form of currency that deploys cryptography to produce secure financial transactions and control the supply of new tokens. Traditional currencies, like the U.S. dollar and the euro, are issued by governments or central banks, but cryptocurrencies operate on a technology called blockchain, which is a decentralized network spread among different networks and systems.
Bitcoin, created in 2009, is still the best-known cryptocurrency, but thousands of others exist, including ether. Cryptocurrencies, like their government-issued counterparts, are a medium of exchange with vast uses, including buying goods and services, transferring money within and across borders, smart contracts, and further applications in decentralized finance (DeFi).
How Does Futures Contract Expiry Impact Ether Futures ETFs and Bitcoin Futures ETFs?
Both kinds of ETFs need to manage the rollover of their futures contracts, which occurs when expiring futures contracts are replaced with others with later expiry dates. However, the ether market is less mature and has less trading volume than Bitcoin futures ETFs. Thus, the process of rolling over ether futures contracts could involve higher costs, affecting the ETFs’ performance.
The Bottom Line
Bitcoin and ether futures ETFs enable investors with regulated exposure to cryptocurrency markets by holding futures contracts that set out to track the underlying assets. They are structured as traditional ETFs, providing a familiar investment product for those who want to speculate on the price fluctuations of Bitcoin and ether without having to own and store them.
The ETFs for each cryptocurrency may differ in risk, volatility, and returns because of their distinct characteristics. Before investing in either, you should consider the funds’ specific market changes to ensure they meet your risk profile and investment goals.
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