The launch of an exchange-traded fund (ETF) based on bitcoin futures in October was epic. Less than a month after it opened, ProShares Bitcoin Strategy ETF (BITO (opens in new tab)) had $1.26 billion in assets – one of the biggest ETF debuts ever. A second bitcoin futures fund, Valkyrie Bitcoin Strategy ETF (BTF (opens in new tab)), opened two days after the ProShares fund.
The bitcoin futures ETFs are actively managed and use similar strategies. The managers buy one-month forward futures contracts – the nearest-dated contract – tied to bitcoin prices. Every month, they close or sell those contracts before they expire and buy new contracts dated for the next month.
You can't actually invest in bitcoin's spot price –the price at which an asset can be bought or sold for immediate delivery – says Simeon Hyman, head of investment strategy at ProShares. "So the futures market is a good place to get bitcoin exposure," he says. Because of the way futures contracts are sold, a certain amount of cash per contract needs to be held in collateral. That's why these ETFs are heavy in Treasuries and cash.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of Kiplinger’s expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of Kiplinger’s expert advice - straight to your e-mail.
Both ProShares and Valkyrie examined how their respective futures-based strategies would have performed in the past, relative to the spot price of bitcoin, and found a high correlation – a so-called beta of 0.87 to 0.99 – between the two. For context, S&P 500 index funds typically have a beta of 1.0 with the stock benchmark.
But futures investing comes with some unique risks. Because of how these securities are priced, shifts in supply and demand for the underlying asset – in this case, bitcoin – can impact contract prices and the fund's returns.
ETFs also have limits on the amount of any given contract they can own, says Steven McClurg, Valkyrie Funds' chief investment officer. Funds with sizable assets may be forced to purchase longer-dated futures contracts, and that can increase volatility. In early November, for instance, ProShares' BITO held November and December contracts.
Even so, the ETFs offer an easier way to gain bitcoin exposure than buying the actual cryptocurrency. You don't have to open a digital currency exchange account or remember any passwords. But if you plan to invest, devote only a small portion of your portfolio to this kind of futures ETF.
There are other ways to gain exposure to bitcoin and blockchain, the technology behind the digital asset. Invesco Alerian Galaxy Crypto Economy ETF (SATO (opens in new tab)) focuses on companies that enable the crypto economy, such as Canaan (CAN (opens in new tab)), a Chinese maker of servers and microprocessors used to create bitcoin. Grayscale Bitcoin Trust (GBTC (opens in new tab)) has yet another approach: Every share in the trust is backed by bitcoin.
-
-
The Divorce Gap: Unique Retirement Issues for Women Over 50
The shocking loss of income and retirement savings that disproportionately affect divorced women is a big challenge – especially for those over 50.
-
4 Steps for Managing Income Withdrawals in Retirement
Investing for Income How Roth IRA conversions can help you minimize your taxes in retirement, extending the life of your savings.
-
Don't Give Up on the Eurozone
mutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
-
5 Fantastic Actively Managed Fidelity Funds to Buy
mutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
10 Bond Funds to Buy Now
Investing for Income Bond funds have seen sizable losses so far this year, but yields are now rising to attractive levels for income-starved investors.
-
Vanguard Global ESG Select Stock Profits from ESG Leaders
mutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
-
Kip ETF 20: What's In, What's Out and Why
Kip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.
Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
-
Do You Have Gun Stocks in Your Funds?
ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
-
How to Choose a Mutual Fund
mutual funds Investors wanting to build a portfolio will have no shortage of mutual funds at their disposal. And that's one of the biggest problems in choosing just one or two.
