Bitcoin has recovered and is now worth more than $57,000. The coin is chugging along on its way to a fourth-quarter bull run. In recent times, the star cryptocurrency has received exceptional acceptance and adoption. Which are all ready for the next step. The much-anticipated futures ETF, which has the potential to bring fortunes to the coin, has yet to arrive.
Lark Davis, a well-known cryptocurrency trader and analyst, believes the opposite. He believes that the futures ETF is inferior to the spot ETF.
#Bitcoin Futures ETFs Are Total Garbage, They Will Still Pump The Market Big Time When Approved, But What The Market Really Wants And Needs Is Spot BTC ETFs.— Lark Davis (@TheCryptoLark) October 14, 2021
The futures ETF, on the other hand, will pump the market after approval. However, it is the spot ETF that the market desires and requires. Furthermore, Ran Neuner, a CNBC host and crypto trader, predicts the approval of three ETFs by the end of October. As a result, speculation about October 27th being very important for the crypto space is making a lot of noise. However, it is unclear whether or not it is related to the Bitcoin ETF.
A Quick Overview of Bitcoin Futures and Spot ETFs
Bitcoin futures ETFs function similarly to traditional futures contracts. Where investors never take possession of the digital asset while gaining exposure to Bitcoin values. Futures contracts are used to back the futures ETF. The price of bitcoin futures may differ from the current price of bitcoin due to market sentiments. As a result, the price of Bitcoin futures ETF may not always track the price of Bitcoin.
The Bitcoin spot ETF is not the same as the Bitcoin futures ETF. The spot ETFs are backed by the digital coin itself. As a result, there is less risk of price divergence with spot ETFs. In layman’s terms, it’s the same as purchasing the real coin rather than its substitute.
Why Are Crypto Traders Turning Away From Futures ETFs?
The futures ETF has a number of advantages over the spot ETF. And it has a few drawbacks for traders looking for investment opportunities.
The contango effect is one of the most significant disadvantages of futures ETFs. When the future price exceeds the spot price, this occurs. When futures contracts expire, the company that issued them must renew them by selling the expired ones. And using the proceeds from the sale of the older ones to purchase the newer ones. These could be vulnerable to manipulation. If the Bitcoin futures ETF’s price is lower than the price of a new contract. The trader must pay more for the same number of new contracts.
Despite its flaws, the introduction of a futures ETF could be a stepping stone toward a spot ETF. As these have the potential to propel Bitcoin and the industry as a whole to new heights. With the approval of three ETFs rumored, we can expect a parabolic uptrend to begin soon.