• Days after its launch, the first Bitcoin ETF in the United States approaches the futures contract limit

  • The ProShares Bitcoin Strategy ETF (ticker BITO) is growing in popularity faster than it can handle. The fund is already approaching the limit set by the Chicago Mercantile Exchange (CME) on the number of futures contracts it can hold.

    The ProShares ETF is extremely popular.

    The ETF already holds 1,900 futures contracts for the month of October alone. The CME limits the number of contracts it can hold in its front month to 2,000, which means there are only 100 left.

    In the meantime, ProShares has 1,400 futures contracts for November to avoid exceeding its limit. The CME, however, imposed an absolute limit of 5,000 futures contracts to be held at any given time. Given that BITO has amassed well more than half of that in just three days, it is very likely that it will meet that threshold very soon.

    BITO, the first Bitcoin Futures ETF in the United States, had the second most successful opening day in NYSE history. It made $500 million in the first hour of trading and nearly $1 billion for the day. This was only surpassed by a BlackRock carbon fund, which simply traded higher as a result of pre-seed investments.

    If BITO continues to spread its holdings over longer-dated contracts, it risks separating futures prices from the actual price of Bitcoin.

    Nate Geraci, president of the advisory firm “The ETF Store,” agreed.

    “As a result, the ETF will begin to incur potentially significant tracking error relative to the spot price of Bitcoin.” As it moves further out on the futures curve, the ETF is forced to acquire Bitcoin price exposure at ever-increasingly higher prices.”

    The Drawbacks of Futures ETFs

    Most people agree that the SEC’s approval of a Bitcoin Futures ETF was a significant regulatory development for the cryptocurrency industry. However, many investors believe that a futures ETF is a suboptimal investor solution when compared to a spot-based one.

    Aside from price tracking errors, futures ETFs come with a slew of administration fees that eat into investors’ profits. Spot ETFs, on the other hand, are virtually free of these drawbacks.

    SEC Chairman Gary Gensler, on the other hand, has made it clear that he is more open to futures-based ETFs. These are governed by the Chicago Mercantile Exchange, which offers investor protections that he values.

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