Budrigan Ltd review-Price Bitcoin reached new highs

Budrigannews.com - A futures-based bitcoin exchange-traded fund could be approved as soon as next week, laying the groundwork for a bitcoin ETF. This week, Bitcoin crossed $60,000 and is close to hitting all-time highs.

BTC/USD bounced 8% to $61,097, and is barely short of everything season of high of 64,778.

CNBC reported late on Friday, citing unnamed sources familiar with the situation, that the futures-based bitcoin exchange-traded funds, or ETFs, proposed by ProShares and Invesco, are widely expected to receive approval from the Securities and Exchange Commission to begin trading next week.

The prospect of an ETF that holds bitcoin futures, a regulated security, has grown on the SEC in recent months. The road to a bitcoin ETF has been paved with rejections and numerous delays.

Seamus Donoghue, vice president of strategic alliances at Metaco, stated in an interview with Investing.com on Friday that "one of the reasons regulators will like a BTC futures-based ETF is the fact that the underlying asset, a BTC futures contract, is already regulated by the Chicago Futures and Trading Commission."

However, what is beneficial to the regulator may not be appealing to long-term investors. Unfortunately, bitcoin futures have a bad reputation due to their poor ability to match bitcoin's price performance.

Dissimilar to a spot bitcoin ETF, a bitcoin prospects trade exchanged reserve doesn't straightforwardly claim or hold bitcoin, but instead bitcoin fates.

Due to the fact that a futures contract is an agreement to buy or sell an asset for a predetermined price on a predetermined date, the price of a futures contract must take into account additional costs or complexities.

In trading jargon, these costs are referred to as "carry," and they include costs for interest, financing, and storage in the case of commodities that result in a futures price that is higher or trades at a premium above the spot price of the underlying asset—a dynamic known as contango.

This contango dynamic is exacerbated by investors' expectations that the price of bitcoin will rise in the future to a higher level than it currently is.

A futures-based bitcoin ETF can result in significant underperformance for institutional investors who want to buy and hold bitcoin for the long term but are not permitted to directly hold BTC. This is especially true when the price of bitcoin fluctuates sideways.

Donoghue stated, "You'll have significant losses if the price of Bitcoin moves sideways, but you've always had very positive premiums in the futures price."

However, futures are typically used for speculating or hedging rather than long-term investing, which has proven beneficial to bitcoin investors.

Donoghue stated, "I don't think anyone would say that if you want to a position in an asset class, a long term way to buy and hold is through the futures market."

However, a bitcoin exchange-traded fund (ETF) that is based on futures could provide investors with additional tools to manage the erratic swings in the price of bitcoin, which are well-known for their large drawdowns of 30 to 50 percent.

Donoghue went on to say, "One of the issues with cryptocurrency for institutional investors has always been the difficulty in hedging away some of the volatility or at least managing that volatility." Futures made risk management around the underlying risk's delta a little bit easier.

The increased flexibility, on the other hand, is not what has motivated bitcoin supporters.

Investors' biggest bet is that a futures-based bitcoin ETF could eventually lead to a U.S.-listed bitcoin ETF, which would not only better match bitcoin's price performance but also open the door to more adoption of cryptocurrencies.

Donoghue states, "I think it's the first step, and probably in the next step, we'll be getting a spot bitcoin ETF, although the timing is unknown." If it were listed, a spot bitcoin exchange-traded fund (ETF) would offer better access to everyone and be a very close proxy for trading the underlying bitcoin."