Spot-Based vs. Futures-Based ETFs: Navigating the Complexities for Crypto Investors
Exchange-Traded Funds (ETFs) come in different varieties, including futures-based and spot-based ETFs. These two categories have distinct characteristics and investment strategies, which are essential for investors to understand. Below, we’ll outline the key differences between these types of ETFs.
In this article we are going to talk about their differences and also what is happening around bitcoin and ETFs.
Futures-Based ETF: These ETFs derive their value from futures contracts on commodities, indices, or other assets. They typically invest in futures contracts, options, or other derivatives.
Spot-Based ETF: Spot ETFs, on the other hand, invest in the underlying physical assets or securities. For example, a gold spot ETF would hold physical gold, while a stock spot ETF would invest in individual stocks.
Futures-Based ETF: They use derivatives like futures contracts to track the performance of the underlying asset. This means they may not perfectly mimic the spot price of the asset.
Spot-Based ETF: These ETFs aim to closely follow the spot price of the asset they hold, providing a more direct exposure to the asset’s price movements.
Liquidity and Trading Hours:
Futures-Based ETF: These ETFs trade during the hours when the futures markets are open. Liquidity can vary and may be lower during off-hours.
Spot-Based ETF: They generally trade during regular stock market hours and offer higher liquidity due to the broader investor base.
Rolling of Contracts:
Futures-Based ETF: Because they invest in futures contracts, they must regularly roll over expiring contracts into new ones. This can lead to a cost known as “roll yield” or “roll cost.”
Spot-Based ETF: They do not have this issue, as they hold the physical asset directly.
Costs and Fees:
Futures-Based ETF: These ETFs may incur additional costs related to futures trading, including brokerage fees and costs associated with rolling contracts.
Spot-Based ETF: Generally, they have fewer expenses related to futures contracts, which can make them more cost-effective for investors.
Futures-Based ETF: Depending on the tax jurisdiction, they may have different tax treatment compared to spot-based ETFs, so investors should be aware of potential tax implications.
Extectation for future:
Expectations of approval of a spot bitcoin exchange-traded fund (ETF) in the US generated euphoria among cryptocurrency investors last week, leading bitcoin to 20% weekly gains and options activity almost record.
We have to keep in mind that if the cash EFT is approved, it will open the doors to many funds that cannot acquire ETFs as their statutes do not contemplate purchases other than via ETF, regardless of the underlying.
So it is likely that if this happens (and not just one ETF since there are about 20 requested), the market could react upwards, but due to new money entering the markets.
Price volatility, which has been absent in recent months, appeared to return as bitcoin soared to $35,000 within hours earlier this week as the discovery of a ticker linked to BlackRock’s proposed bitcoin ETF led to irrational exuberance.
It is important to keep in mind that we are in what is theoretically crypto spring since the bitcoin halving is also approaching… (2024, march).
TA for bitcoin
In the current view of its price, it seems to be in an upward channel since November 2022.
A year and months later, the upward movement seems more than clear.
Around USD 39,000 should be the possible target. With possible extension to USD 41,000.
Now and after the big rise made, it could either go down to cover the big rise somewhat and then go back up to the ceiling area of this theoretical channel or, on the contrary, continue and make the movement and then rest in a possible fall. and offer several months down, waiting for the bitcoin halving to approach.
It is a personal appreciation. It is not a recommendation to buy or sell crypto assets. I recommend speaking with your trusted financial advisor.