The first US bitcoin futures exchange traded fund will start on Tuesday, a milestone for the cryptocurrency industry, and others may soon follow.
The long-awaited ProShares ETF will offer exposure to bitcoin futures contracts to buy or sell the asset later at an agreed price — rather than bitcoin itself.
“The ETF is a breakthrough in what is available on the market today,” said Karan Sood, CEO and CEO of Cboe Vest, a financial advisory platform in McLean, Virginia. “That’s what investors are happy about.”
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Investors can currently buy bitcoin via digital currency exchanges, but there are some security issues worry about hackers or lose so-called private keys, which provides access to their assets.
Another option, bitcoin trust, offers an easier way to add bitcoin to portfolios through broker or pension accounts. However, these assets may come with higher fees and values may not reflect the digital currency price changes.
While bitcoin futures ETFs do not offer what the industry eventually wants – funds that invest directly in digital currency – it provides another choice when companies compete for the green light from the Securities and Exchange Commission to launch regular bitcoin ETFs.
Priced by bitcoin jumped more than 2% on Monday to $ 61,958.24, according to Coin Metrics.
There are some things that potential investors need to think about before putting money into bitcoin futures ETFs, say financial experts.
Although the funds may have a “very high correlation” with bitcoin, the asset will not reflect the value of the digital currency as it tracks the price of future contracts, Sood said.
It’s just the ultimate risk you would ever take.
Partner at Benold Financial Planning
In addition, it costs more to own funds over individual assets. But some investors are willing to pay more for an ETF’s “institutional level of liquidity, custody and implementation” versus managing the currency themselves, he said.
However, some advisers see digital currencies as a speculative asset and say that investing in futures prices can be unpredictable.
“It’s just the ultimate risk you would ever take,” says certified financial planner Jordan Benold, partner at Benold Financial Planning in Prosper, Texas, explaining how bitcoin volatility combined with futures can be a game. “You really like high stakes poker right now.”
Bitcoin’s value comes from the supply and demand of an “unstable and unpredictable group of market participants”, making it unsuitable for an investment portfolio, says CFP Anthony Watson, founder and president of Dearborn, Michigan-based Thrive Retirement Specialists.
But if someone’s retirement savings and other goals are on track, and they have the “fun money” they want to invest in bitcoin futures, some advisors would not discourage a minimal amount of experimentation.
“I would just say do it on a very, very small scale,” Benold said. “Dip your toe in the water.”