What Is a Bitcoin Futures ETF?
Bitcoin futures exchange-traded funds (ETFs) are pools of bitcoin-related assets offered on traditional exchanges by brokerages to be traded as ETFs. The intent behind these ETFs is to give retail and other investors exposure to cryptocurrencies without needing to own them.
Key Takeaways
- Bitcoin futures ETFs are exchange-traded funds that aim to offer exposure to the price movements of bitcoin.
- The ETFs use futures contracts to achieve this goal.
- Fund managers purchase these contracts and bundle them into a fund.
- These funds gained popularity when first introduced, in part because the SEC initially blocked ETFs that directly held Bitcoin before approving them in 2024.
Understanding Bitcoin Futures ETFs
An exchange-traded fund is an investment fund that holds assets and issues securities as shares of the fund which trade on an exchange.
A futures contract is a standardized contract where two parties agree to exchange a specific quantity of assets on a specific day for a particular price. Bitcoin futures contracts are traded on the Chicago Mercantile Exchange.
So, a bitcoin futures ETF is an exchange-traded fund composed of shares—and other securities—of a company that buys and sells bitcoin futures contracts. These shares are sold on a mainstream exchange.
These ETFs are created by purchasing futures contracts from the CME Group and bundling them into a fund. Next, the company offers shares of the fund to investors. The futures contracts in the fund are then actively managed while the shares are trading. So, instead of trading bitcoin on a cryptocurrency exchange, investors can trade these shares on a traditional exchange and gain exposure.
Bitcoin Futures ETF History
The first concept for an ETF that held bitcoin (not bitcoin futures) emerged shortly after investors and brokers noticed that Bitcoin prices were trending upward and gaining popularity amongst investors. This signaled an opportunity to generate returns by trading bitcoin.
As Bitcoin’s price rose to tens of thousands of dollars, retail and average investors lost the opportunity to invest directly in Bitcoin. Brokerages, responding to demand for investor access to Bitcoin, began to design Bitcoin exchange-traded funds. Applications with the Securities and Exchange Commission (SEC) for approval started in 2013 with the Winklevoss brothers.
In an exchange-traded fund that tracks stocks, the fund purchases the stocks. These are the fund’s holdings, and the company that buys them offers fractionalized shares on exchanges, which trade nearly 24 hours per day, seven days per week.
In many crypto fan’s minds, a bitcoin ETF would consist of bitcoin purchased by a company, which would securitize them and offer shares to investors. However, the Security and Exchange Commission rejected these proposals until January 2024. A court order in August 2023 forced the SEC to reconsider these proposals, and on Jan. 14, 2023, the Commission approved 11 Bitcoin Spot ETFs that hold bitcoin.
The first official Bitcoin-linked ETF was the Proshares Bitcoin Strategy ETF (BITO), approved by the SEC in October 2021 and listed on the New York Stock Exchange.
Goals of Bitcoin Futures ETFs
Bitcoin futures ETFs are designed to allow more people to invest in Bitcoin without the necessary expenses and hassles of buying them directly. They eliminate the need for security procedures and excessive funds while providing a familiar investment type.
Security
While you don’t technically have cryptocurrency in your wallet, you have security keys that you need to safeguard if you own Bitcoin. If you buy your cryptocurrency through an exchange, you can choose to have your keys stored on that exchange if it offers that service.
However, wallets and exchanges can be hacked and keys stolen—which means your cryptocurrency can be stolen. You can store your keys offline using several methods, but none of these methods are 100% secure or guaranteed. An ETF doesn’t require you to own any cryptocurrency, store keys safely, or move the keys back and forth between different types of storage—you own shares of the fund, which doesn’t own any cryptocurrency either.
You can store your keys in a “hot wallet” (connected to the internet) or “cold storage” (an offline method). Each has its own benefits.
High Prices
One of the most significant obstacles for average investors is price. Bitcoin (BTC) set a record high of nearly $69,000 per BTC shortly after the Proshares Bitcoin futures ETF was listed on the NYSE. Over the next few years, its price dropped to under $17,000, then rose to between $20,000 and $30,000. Since late 2022, the price has slowly risen, floating around $30,000 for a period and sitting at a little more than $41,000 as of Jan. 20, 2024.
The high price means that even at today’s medium prices, retail investors may not have the assets to purchase 1 BTC. While you can buy smaller bitcoin denominations on cryptocurrency exchanges, an ETF allows you to gain exposure to BTC within your budget, risk tolerance, and investing goals on a fully regulated exchange using an approved instrument.
ETFs are Better Understood
Perhaps most importantly, ETFs are much better understood across the investment world than cryptocurrencies. So, if you’re only interested in becoming involved in digital currency investing, an ETF lets you focus on trading an asset you already understand rather than learning about blockchain, mining, decentralized exchanges, distributed ledgers, key storage, and cryptocurrency.
How to Invest in Bitcoin Futures ETFs
If you’re looking to invest in bitcoin futures ETFs, you can purchase them through your broker or advisor if they offer them. There are several bitcoin futures ETFs that trade on exchanges such as the New York Stock Exchange ARCA and Nasdaq:
- Proshares Bitcoin Strategy ETF (BITO)
- Valkyrie Bitcoin and Ether Strategy ETF (BTF)
- VanEck Bitcoin Strategy ETF (XBTF)
- Global X Blockchain & Bitcoin Strategy ETF (BITS)
There are also bitcoin futures ETFs that let investors short the cryptocurrency, such as the ProShares Short Bitcoin ETF (BITI).
It’s important to note that these ETFs are not entirely comprised of bitcoin futures. For the most part, they invest in traditional securities, holding bitcoin futures contracts when it meets the fund’s strategy. For example, the Proshares Bitcoin Strategy Fund is designed to hold bitcoin futures contracts only when positions are profitable. Otherwise, it can hold securities of Bitcoin-related companies and money market instruments. It can also borrow using reverse purchase agreements.
Is Investing in Bitcoin Futures ETFs Risky?
Yes, bitcoin and other cryptocurrencies are highly speculative assets and tend to see significant price volatility. Investing in these ETFs is risky because of the large price swings, but you can invest much less in them, making it a good choice if you want to speculate on bitcoin prices.
What Is the Difference Between a Bitcoin Futures ETF and a Bitcoin Spot ETF?
A bitcoin futures ETF holds bitcoin futures contracts, while a bitcoin spot ETF holds bitcoin.
Is There a 3x Bitcoin ETF?
As of Jan. 20, 2024, there were not any bitcoin spot ETFs that use leverage to amplify gains (and losses), although it is likely that there will be broker-dealers that try to create them.
The Bottom Line
Bitcoin futures ETFs are funds that bundle bitcoin futures contracts. They provide investors without the means or desire to invest directly in cryptocurrency a way to gain exposure to these volatile and sometimes lucrative assets. You can purchase them on official exchanges.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own bitcoin futures ETFs.