Bitwise Asset Management is dropping its application to list a bitcoin futures ETF, while keeping its filing for a physically backed fund, Matt Hougan, CIO, tweeted Wednesday.
That follows a similar move by Invesco, which announced it wouldn't pursue its futures-based ETF hours before the first one launched last month.
The decision boils down to the structure of the bitcoin futures curve, according to Mr. Hougan. The inherent scarcity of bitcoin means that longer-dated contracts typically trade at a premium to the spot price — a structure known as contango. That dynamic eats into returns, given that futures-backed funds must continually roll forward the exposure as the contracts expire, paying a fee to do so along the way.
"Bitcoin futures have historically traded in contango. As a result, a rolling bitcoin futures ETF will generally underperform spot bitcoin," Mr. Hougan tweeted. "Sure enough, that's what we're seeing: Contango today is running a bit over 6%/year."
The ProShares Bitcoin Strategy ETF (ticker BITO) launched in October in one of the most successful debuts on record. Pent-up demand for bitcoin exposure in an ETF wrapper sent the fund bumping up futures position limits, forcing BITO to invest in further-dated contracts. The ProShares fund has trailed the world's largest cryptocurrency as a result.
The ProShares fund has gained about 0.9% since its mid-October launch, while the Bloomberg Galaxy Bitcoin index has returned 2.8% in that period. The world's largest cryptocurrency hit a record high just below $69,000 on Wednesday before cooling. Bitcoin was trading at just under $64,800 as of Thursday afternoon.
Another wrinkle is stretched capacity at futures commission merchants, which act as an intermediaries between derivatives-backed funds and exchanges, Mr. Hougan wrote. The flood of demand for the ProShares bitcoin ETF quickly ate up the balance sheet of the firm acting as a futures commission merchant for the fund at its launch, according to a person familiar with the matter, rattling other firms and contributing to delays in other U.S. bitcoin futures ETF launches.
"This will ease over time, but for now, it's added yet another expense," Mr. Hougan tweeted. "The result? Costs on top of costs, plus added complexity."
