On October 19, the first bitcoin futures exchange-traded fund (ETF) was launched on the New York Stock Exchange, marking a validation moment for the budding crypto space. The launch will allow people to gain exposure to investment in bitcoin without actually buying the cryptocurrency. At the time of writing, bitcoin is trading at an all-time high of $67,139 (approximately Rs 50,25,433) on some Indian exchanges. Similar to stock trading, investors can buy and sell shares of bitcoin ETFs at any time during market trading hours of the day.
The arrival of the Bitcoin Futures ETF on the New York Stock Exchange has met with great excitement from crypto-enthusiasts. This excitement is further fueled by the fact that the value of bitcoin hit all-time highs just a day after the launch of this bitcoin ETF in the US.
What is a Bitcoin Futures ETF?
Exchange-traded funds (ETFs) are financial products that are regulated and can represent a wide range of different assets. An ETF also tracks the price fluctuations of an underlying asset, giving people the option to profit from the asset’s price trend without actually owning a single unit of it.
Bitcoin futures are a type of price-tracking trading contract entered into by two parties. A report from CoinDesk explained that both parties have agreed to buy or sell bitcoin at a predetermined price at a later date. This type of trading takes place on the commodity exchange.
The last day’s price of bitcoin – more or less – may not affect this bitcoin futures contract. In this case, where one person gains, the other suffers.
The bitcoin futures ETF receiving approval from the US Securities and Exchange Commission (SEC) has heated up the environment around the cryptocurrency, which is underway in the states while the governments there use the crypto space to their advantage and Looking for ways to regulate it.
“What we are trying to do is making sure that we do the best we can to bring projects within our authorities to the investor protection net. Bitcoin futures is overseen by our sibling agency, the Commodity Futures Trading Commission (CFTC). Gary Gensler, Chairman, SEC, said during an interview.
“The product you have here has been overseen by a US federal regulator, the CFTC, for four years, and that is being wrapped up within our jurisdiction called the Investment Companies Act of 1940. So, bringing us to There is some potential for this investor protection inside. Bitcoin is still a highly speculative asset class and listeners should understand that beneath this, it still has the same side of volatility and speculation,” Gensler continued.
A video clipping of the interview has been tweeted by CNBC.
— CNBC (@CNBC) October 19, 2021
The value of an ETF is derived from the price movements of bitcoin futures.
Pros and Cons of Bitcoin Futures ETFs
In addition to removing the cost and requirement of storing an asset, futures ETFs make it easy to buy and trade the commodity. In addition, one of the parties to the contract may draw a margin of profit which may be of higher magnitude.
However, a major drawback of this protocol is that assets such as bitcoin cannot be held or traded on major exchange platforms. Furthermore, the accuracy of various crypto-price trackers fluctuates, so the asset price agreed upon for a specific date under a future ETF contract can incur significant losses.
When a bitcoin futures contract expires, the company issuing the ETF is required to roll over the contracts, which means selling the nearly expired contracts and buying new contracts with extended expiration dates. Renewing contracts by using
In a situation where the future contract price of an asset such as bitcoin is lower than the price of the new contract, the income generated by selling the contracts approaching expiration will be insufficient to buy the same number of contracts that expire at a time. later date.