It is established that the U.S. Securities and Exchange Commission (SEC) will approve a Bitcoin exchange-traded fund before it approves a physical Bitcoin ETF. The significant advantage to this is the exposure of a broad audience to the crypto audience. They will attract more assets because it is very easy to your to use.
Clear Regulatory Framework
The favorable argument for the success of a cryptocurrency futures ETF is the complete regulatory framework in place. This framework is well established when you compare it to the framework of physical cryptocurrency assets.
Futures is part of the Commodity Futures Trading Commission’s blanket, and their contracts undergo standardization. In some cases, you may not need a digital wallet, and there may be little or no questions about the custodian of the assets because there are no physical assets associated with the futures.
On the other hand, the Know Your Customer (KYC) verification step is out of the equation because you do not need to move any decentralized asset from an address to another. It is well known that the futures markets undergo more monitoring, regulation, and scrutiny when compared to the spot markets.
The futures-backed ETFs are becoming “liquid alternatives” because their registration would fall in the 1940 Investment Company Act. This will bring about increased complex instruments and strategies’ investments. At the same time, the ’40 Act funds have mutual funds underneath them.
Registering Bitcoin Futures ETFs under the ’40 Act funds will help them dodge several regulations because they are only investing in futures listed on an exchange such as Chicago Mercantile Exchange (CME), which the United States regulates.
How Simple the Futures Are
There must be enough simplicity surrounding every new money that will be added to the ETFs. That’s because the simplicity will satisfy the objectives of spiking individual interest in the new listing, which has been on the sidelines for a long time. But futures are naturally complex. Questions now arise on how to beat it.
The ETFs system was designed to be cost-effective and become the best liquid alternative for managed funds. But futures are not in the same shoes here. Before you can trade futures, the margin is inappropriately high when you make asset classes’ comparisons.
Meanwhile, the trade volumes happening on the U.S. regulated exchange are questioning the capacity of SEC exchanges such as CME to meet the demand of liquidity when high market volatility occurs. These low trade activities resulted from offshore efforts by users.
Investors may pay higher costs because of the complexity of futures. That is because the first generation of this rollout will contain different assets, including Bitcoin futures contacts. As a result, tax and asset diversification will become more complex. Meanwhile, you will have a subsidiary to keep this kind of investment.
Another primary concern, in this case, is the difference in the price of futures and spots. Futures contracts do not follow the step of their attached assets. An instance is the huge price difference between Bitcoin’s prices envisaged for 30 days and the original price when that day arrives. This increment may multiply more than a hundred times because of the market volatility.
History reveals that investors demand spot counterparts of futures-based ETFs than they demand those ETFs. An example is the most significant demand for spots ETF for gold compared to enormous gold futures EFT demands. The former holds at fifty billion U.S. dollars, and the latter holds at forty billion U.S. dollars.
The Right Step in the Movement
The big question around the blocks is understanding if a Bitcoin futures ETF is more harmful than good.
Definitely not. Bitcoin futures EFTs are opening investors up to an efficient system to own and trade crypto assets. It may not be inexpensive as a spot EFTs. Likewise, it may be a complex system, but it would be the right step for that cause.
As a result of this, the investment community will get exposed to crypto investment. The ETF is designed to ease stress for financial advisors and enable them to incorporate Bitcoin into their services and processes. Meanwhile, investors are protected by the 1940 Act. Due to this, investors have nothing to worry about in their portfolios, but they should tab on their fund management skills.
Another vital feat this is helping the SEC to achieve is establishing that it is ready to engage in the crypto economy. This might also be credited for holding conversations with crypto startups to discuss regulation. Launching the Bitcoin futures ETF is a massive step towards that.
But without care, the issuer may lose focus on the original plot due to its success. Instead, they should focus on collaborating with SEC and regulators to clear the air about a spot Bitcoin ETF approval. This may seem like a long journey, but it is a crucial step to take.
Bitcoin futures ETFs give an investor the leverage to closely observe Bitcoin behavior in the market. This leverage is cost-efficient. Likewise, it is expected that the crypto industry will experience the creation of new digital assets.