The largest US bank said that although the ProShares Bitcoin Strategy ETF raised $ 1 billion in the first days, it would be more profitable for its investors to buy bitcoin directly.
The bank holding notes that the ETF on bitcoin futures has a big drawback, which can lead to a decrease in its profitability if too much assets are invested in the fund.
“Contango on the BTC futures curve could reduce the performance of these funds due to the cost of carrying them over. The carry-over price can be several times higher than the fund management fees and could get even higher if these products collect significant assets due to their market impact. ”
According to the bank, this will happen because the ETF does not own bitcoins as an underlying asset. Instead, the ETF owns bitcoin derivatives that attempt to match the profitability profile of the cryptocurrency through futures contracts. In order to actively manage a portfolio of Bitcoin futures, which are closely related to cryptocurrency price movements, the ETF must regularly roll over Bitcoin futures contracts to the next month just before they expire. This approach creates different trading costs and is less efficient than simply buying and storing bitcoin.
According to JPMorgan, the average annual rollover cost of futures contracts since mid-2019 has been around 9%, nearly 10 times the ProShares Bitcoin Strategy ETF’s annual spending ratio of 0.95%. This metric may over time disappoint investors as they will lag significantly behind in terms of returns from direct investors in bitcoin.
The bank said ETFs with time-stretched volatility are a good example of how long-term profits can be reduced as the costs associated with trading futures increase. Because the more long-term investors there are, the more expensive it becomes to hold them due to the impact of the ETFs themselves on the market.
Not all investors are looking to invest in a successful Bitcoin Futures ETF. Catherine Wood said the company will look into Bitcoin futures ETFs until it sees an orderly move with decent two-way liquidity and smaller contango. At the same time, Tom Lee, co-founder of Fundstrat Global Advisors, believes that the demand for Bitcoin ETFs will be high, will last for a long time and the fund will attract up to $ 50 billion.
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