Both futures-based and product-based ETFs carry the same level of risk. ETFs traded in OTC markets have lower prices because they have not registered with the SEC.
Tom Emmer and Darren Soto, Congressmen from the United States of America, highlighted their disagreement with the approval of Bitcoin futures ETFs by the Securities and Exchange Commission (SEC). Officials argued that if this instrument gets authorized, they should still give way to ETFs supported directly in Bitcoin.
The congressmen revealed their opinion and their allegations through a letter sent to the president of the SEC, Gary Gensler. The first argument highlighted by Emmer and Soto is that ETFs supported directly in Bitcoin bring more protection to their investors than ETFs based on derivatives contracts of this cryptocurrency.
This protection happens because the price of product-based ETFs gets rooted directly in the value of the product. A vital point that also appears in the letter is that both ETFs, both futures-based and directly product-based, show the same risk of manipulation and fraud to their owners.
According to the investor’s preference for these instruments, the balance goes in favor of product-backed ETFs. The congressmen highlighted in their letter that gold-based ETFs have more than USD 55 billion in assets in the market, while those based on gold futures barely surpass USD 50 million.
The most vital difference between ETFs based directly on a product, also known as spot, and future ETFs is that the issuers count on a physical reserve of the product in question.
On the other hand, futures ETFs meet their roots on a derivative of the product in question. According to this contract, a purchase and sale agreement may happen at a price and on a specific date.
Some Bitcoin ETF Investors Still Lack SEC Protection
Finally, the congressmen mentioned what happens in the OTC (Over The Counter) markets with certain Bitcoin ETFs. In such cases, even though these markets voluntarily comply with the SEC’s guidelines for ETF trading, the prices are much lower than fair. This situation happens because they cannot properly register as an ETF with the SEC.
According to the congressmen, both ETFs based directly on the product and those ETFs based on their futures are equally beneficial for investors. Therefore, each participant in the exchange should count on features that could allow them to choose the product they consider best suited to their needs.
The Arrival of the First Bitcoin ETFs and their Impact on the Market
On October 19, 2021, the first Bitcoin ETF made its entrance in the New York Stock Exchange (NYSE). It is a Bitcoin futures-based ETF whose issuer is the investment firm ProShares. This fact boosted the price of bitcoin to an all-time high, above $ 66,000.
The second SEC-approved Bitcoin ETF arrived in October 22. It is also a futures-based ETF issued by Valkyrie Funds and traded on the Nasdaq stock exchange.
The letter the congressmen Emmer and Soto sent to the president of the SEC may differ regarding ETFs based on futures and those based on the product.
By: Jenson Nuñez
