This year, the U.S. Securities and Exchange Commission approved 12 spot bitcoin ETFs and nine spot ether ETFs.
Let’s dive deep into the distinctions between spot and futures exchange-traded products (ETPs) for cryptocurrencies, providing essential insights for investors navigating the ever-evolving world of crypto investments.
Spot vs. Futures: Navigating the Crypto ETF Landscape
In traditional finance (tradfi), a spot crypto ETF directly holds the underlying cryptocurrency, such as bitcoin or ether. This setup allows investors to purchase shares that represent ownership of the digital asset, reflecting its live price.
Investors benefit from tracking the cryptocurrency’s value directly without the hassle of managing the digital assets themselves. For example, there’s no need to register on an exchange or figure out how to use a non-custodial wallet.
Spot ETFs are traded on established exchanges like Nasdaq, NYSE, and CBOE, offering greater liquidity and enhanced regulatory oversight. This can be particularly appealing to institutional investors wary of the risks associated with holding cryptocurrencies directly.
Currently, among the 12 spot bitcoin ETFs available in the U.S. are IBIT, GBTC, BTC, FBTC, ARKB, BITB, HODL, BRRR, EZBC, BTCW, DEFI, and BTCO. The nine-spot ether ETFs include ETHE, ETH, ETHA, FETH, ETHW, ETHV, EZET, QETH, and CETH.
Notably, the ETFs with tickers ETH and BTC are mini bitcoin and ethereum funds by Grayscale.
On the other hand, a futures crypto ETF does not involve direct ownership of the cryptocurrency. Instead, it invests in futures contracts—agreements to buy or sell the asset at a predetermined price on a future date.
These ETFs track the anticipated future price of the cryptocurrency, rather than its current market price.
This can lead to discrepancies with the spot price due to factors like contract rollover costs and market conditions such as contango or backwardation, which affect futures contract performance.
Leading the charge among U.S. bitcoin and ether futures ETFs are BITO, BTF, XBTF, BITS, EETH, EFUT, and BETE.
When choosing between spot and futures ETFs, investors should weigh the different risk profiles and cost structures. Spot ETFs provide direct exposure to the cryptocurrency’s price but come with challenges related to custody and security.
Futures ETFs avoid custody concerns but are subject to the complexities of the futures market, including potential tracking errors and additional costs associated with contract rollovers. Ultimately, the decision between these two types of ETFs comes down to an investor’s risk tolerance and investment goals.