11 Jan 2022

Futures-based bitcoin ETFs see lackluster interest

BITO now holds less than 5000 CME futures contracts for the first time since November, and its AUM has reached its lowest level since Oct 19, signaling dwindling interest for BTC exposure through futures-based ETFs
Futures-based bitcoin ETFs see lackluster interest.svg
Source: BITO
In October, the first futures-based bitcoin ETFs went live. They quickly gained large adoption, as Proshares' BITO ETF became the fastest ever ETF to reach $1 billion in AUM after only two days of trading. However, the interest in the BITO ETF and especially its competitors from Valkyrie and VanEck quickly dampened. The AUM of BITO hasn't been lower since two days following the ETF launch. The lackluster trend of these ETFs has several explanations. One obvious explanation is the poor momentum seen in the market over the last few months, with everyone's eyes being on a more hawkish FED. Another explanation is the high costs associated with futures-based ETF instruments. The chart displays BITO's bitcoin exposure through futures contracts. As evident by the chart, BITO sells its front-month exposure to buy the next-month contract each time the contract approaches expiry. This rolling involves costs as bitcoin futures tend to trade in a contango, meaning that the next-month contract tends to trade at a premium to the front-month contract. Over time, these costs compound.The SEC has yet to approve any spot-based ETFs, instruments that would not suffer the same negative compound effect. A couple of interesting filings awaits the final verdict, particularly the Fidelity filing, which will receive its verdict by Jan 20th. The consensus seems to be new rejections. Anyhow, we look forward to reading the verdict, as Fidelity has contributed with analysis proving CME's importance in bitcoin's price discovery, making it more difficult for the SEC to neglect the possibility of a surveillance-sharing agreement between Fidelity and CME.
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