This year, the US Securities and Exchange Commission approved 12 bitcoin spot ETFs and nine ether spot ETFs. Here’s a deep dive into the distinctions between spot products and crypto asset exchange-traded products (ETP) futures, offering essential insights for investors who navigate the ever-changing world of crypto investments.
Spot vs. Futures: Navigating the Crypto ETF panorama
In the realm of traditional finance (tradefi), a crypto spot ETF directly holds the underlying cryptocurrency, such as bitcoin or ether, allowing investors to buy shares that correspond to ownership of the digital asset. This configuration reflects the real-time price of the cryptocurrency, offering investors a direct way to track its value without the hassle of managing the digital assets themselves. For example, investors do not need to register for an exchange or understand how to use a non-custodial portfolio.
Spot ETFs trade on established exchanges such as Nasdaq, NYSE and CBOE, offering greater liquidity and regulatory oversight. This can be particularly interesting for institutional investors who are wary of the risks associated with holding cryptocurrencies definitively. Among the 12 BTC spot ETFs currently available in the US 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. ETFs with ETH and BTC tickers are Grayscale mini bitcoins and mini ethereum trusts.
On the other hand, a crypto futures ETF does not imply direct ownership of the cryptocurrency. Instead, it invests in futures-agreements to buy or sell the asset at a price set at a future date. These ETFs track the expected future price of the cryptocurrency, not its current market price. This can lead to discrepancies with the spot price due to factors such as contract rolling costs and market conditions such as contango or backward, which affect the execution of futures contracts. BITO, BTF, XBTF, BITS, EETH, EFUT and BETE drive the charge between Bitcoin and Ether futures ETFs.
When deciding between spot ETFs and futures, investors should evaluate different risk profiles and different cost structures. Spot ETFs offer direct exposure to the price of cryptocurrency, but present the challenges of trusting a custodian and his security. Futures ETFs evade these custody concerns, but are subject to the complexities of the futures market, including potential tracking errors and additional costs related to rolling contracts. Ultimately, the choice between these two types of ETFs depends on an investor’s risk tolerance and investment goals.
