2021 will go down in Bitcoin history as the year when the first Bitcoin exchange-traded fund (ETF) was launched.
ProShares Bitcoin Futures ETF (BITO) became an overnight success. It was the fastest ETF to attract over $1 billion in as little as two days after its debut.
Although the new ETF opened up the space to many new investors, it’s still only a “paper” or derivative version of the Bitcoin ETF. The “real” or spot version of the Bitcoin ETF application is pending.
It’s important to remember that the U.S. Securities and Exchange Commission (SEC) has already turned down multiple Bitcoin spot ETF applications in 2021.
Currently, there are two prominent spot Bitcoin ETF applications filed at the SEC:
Bitwise Asset Management and Grayscale.
Whereas Bitwise aims to introduce an entirely new spot Bitcoin ETF, Grayscale intends to create a spot offering by repurposing its current Grayscale Bitcoin Trust product.
Unfortunately, the SEC has decided to delay a verdict on both physically-backed Bitcoin ETFs until February 2022. The Commission published its decision on Wednesday last week.
So what’s the difference between future and spot ETF?
Let’s take a look.
I don’t want to get into the intricacies of how futures ETF is inefficient compared to spot ETF. I wrote about that at length in my article.
However, I will simply clarify the main difference between spot and futures ETF.
Future ETFs are betting on the price of the underlining asset, but they don’t settle in the asset; they’re cash-settled. That is to say, the holders and the ETF have only exposure to futures contracts, not to the actual Bitcoin.
On the other hand, the spot ETF buys the asset directly and holds it in their custody. In other words, the ETF has actual Bitcoin in their wallet instead of just some financial instruments.
Without a doubt, the approval of a Bitcoin spot ETF would be more compelling to investors, both from a price tracking and fee structure standpoint. The gap between the asset and the future ETF is significant. Some experts predict 13-14% underperformance.
Also, with spot Bitcoin ETF, private investors and institutions would be purchasing the “real” Bitcoin instead of a “paper” Bitcoin.
But let’s not get our hopes up.
The SEC has “killed” many spot-Bitcoin aplications in the past.
According to Bloomberg Intelligence analyst James Seyffart the likelihood of approval anytime soon seem small.