Huobi Research Institute, the leading blockchain application research house, has published its latest research report titled “Bitcoin Futures ETFs: A Dive to Product Features”.
The first batch of U.S. “nominal” Bitcoin ETFs, BITO and BTF, finally launched in October 2021. Market sentiment has been highly positive, leading the CME Bitcoin Futures’ open interest to rise 49% and reach a historic high of $5.45 billion in net worth. Up to November 2, BITO (ProShares) had achieved an exposure value of over $1.28 billion, nearly 24 times greater than BTF (Valkyrie) which launched merely 2 days later, demonstrating a huge market advantage for “early birds”.
Key Highlights of the Report
A comparison of 6 Futures ETF filings shows:
- Futures ETFs share similar properties, and their competition may lie in fees (i.e. 0.95% of BITO and 0.65% of VanEck), and directions like short exposure.
- Active management attributes include rolling and diversification. BITO and BTF held 34.35% and 49.97% of Bitcoin Futures respectively; the latter held front-month contracts only.
Futures ETFs VS Spot Products (ETPs/ETNs):
- Futures ETFs allowed two-way cross-market trading, enabling flexible strategies for institutional arbitragers.
- Futures ETFs provide liquidity expansion that does not require the circulation of Bitcoins.
- CME position has limits of 4,000 for front-month and 5,000 for overall.
- Potential contango risks in futures may result in extra internal costs, 10.91% for current annualized spread, and an average of 5%-10% overall.
- A 25%-35% tax rate applies for unrealized gain in futures, which is much higher than spot products.
We believe the launch of futures ETFs is a milestone for the crypto industry and financial markets. It is a compromise SEC has made in adapting to the rising market demand; more futures-based products are on the way. Additionally, futures ETFs may create a new channel for the discovery of Bitcoin’s fair value.
Looking forward, we expect the crypto asset management market to face a rat race that will lead to an increase in arbitraging activities in the short run due to the nature of the product. In the long run, we believe Bitcoin futures ETFs could be the bridge to the launch of spot ETFs. The current gap could be an opportunity for crypto-friendly countries in the EU and Asia, especially the UK, Germany, Switzerland, Singapore, and Malaysia.
Information provided by FinancialNewsMedia.