26 months after the launch of Bitcoin futures ETFs, traders are preparing for a spot product

Bitcoin spot prices continue to fluctuate due to changing expectations about whether and when an ETF will receive the green light from U.S. securities regulators.

The ongoing parlor game of “whether they’ll bring it to market” has analysts speculating about what might happen to the product’s predecessor: the Bitcoin futures ETF.

The US Securities and Exchange Commission approved ETFs tracking Bitcoin futures markets in October 2021. These approvals marked a turning point for Bitcoin and cryptocurrencies, giving retail investors and advisors access to Bitcoin exposure through their traditional brokerage and retirement accounts for the first time.

With a spot product – and possibly several – on the horizon, some predict some investors will lose interest in the once-novel futures products.

“Futures-based Bitcoin ETFs have been useful for some investors in the absence of spot Bitcoin ETFs,” said Zach Pandl, executive director of research at Grayscale. “Looking forward, as futures-based ETFs typically underperform, we expect institutional investors to make limited use of futures-based Bitcoin ETFs as these investors may also interact directly with the CME and “You don’t need an ETF wrapper.”

Grayscale is currently seeking approval to convert its Grayscale Bitcoin Trust into an ETF, an effort supported by an August 2023 court ruling in which a federal judge ordered the SEC to reject spot Bitcoin ETFs for reasons cited in the past has prohibited.

The ProShares Bitcoin Strategy ETF (BITO), the first of its kind to launch, generated $950 million in trading volume on its opening day in October 2021, the second-highest in the history of a new ETF at the time. It was the fastest ETF in history to reach $1 billion in assets under management. Bitcoin gained nearly 20% in the month that futures ETFs were approved and began trading.

Although BITO's assets under management reached a record high of $1.47 billion at the end of last year, they are down about 5.5% year to date. The product, similar to Bitcoin itself, delivered a positive return of around 95% in 2023, but is trading 46% lower since its launch.

The second Bitcoin futures product to launch, Valkyrie's Bitcoin Strategy ETF (BTF), expanded to include Ether futures in October 2023. BTF is also in the red so far this year. The product rose 100% in 2023 but remained about 45% lower since its launch 26 months ago.

Spot Bitcoin prices were around 150% higher at the end of 2023 and are currently up 3% year-to-date.

The bitcoin futures market is “mature, liquid and regulated,” said Simeon Hyman, global investment strategist at ProShares, during a Bloomberg TV appearance on Wednesday. “There are a lot of things we don’t know about the spot market…things we know futures solve.”

Pricing is complicated in spot markets, Hyman said, and “we don't know exactly how money creation will work in a spot ETF.”

Crypto asset manager Hashdex filed in 2023 to convert its Bitcoin futures ETF, launched in 2022, to track spot Bitcoin prices. Hashdex proposed getting spot Bitcoin prices from the CME futures exchange. In November, the SEC postponed its decision on the transition until January 1, 2024, but then opened a public comment period, so the deadline no longer applies.

The SEC has until January 10 to approve or reject Ark and 21Shares’ Bitcoin ETF application.

Analysts have been looking for one of the 13 issuers currently looking for a spot ETF to file their updated 19b-4 forms, a sign that Eric Balchuans, senior ETF analyst at Bloomberg Intelligence, will show Approval “imminent”.

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