U.S. asset managers are planning to launch Bitcoin exchange-traded funds (ETFs) that utilize derivatives to reduce the price volatility of digital assets.
This initiative aims to make cryptocurrency more appealing to risk-averse investors.
According to a report by Financial Times on Monday, December 2, leading firms like Calamos Investments, First Trust Portfolios, Innovator ETFs, and Grayscale Investments have submitted proposals to the U.S. SEC. These ETFs aim to use strategies such as “buffered” and “managed floor” mechanisms to shield investors from substantial losses—up to 30%—while capping potential profits.
The proposals also include variations such as covered call ETFs and leveraged strategies, broadening options for investors seeking a balance between risk and reward.
“Given the meteoric rise in bitcoin this year, many investors are likely regretting they missed out because they were nervous about the volatility of the cryptocurrency,”
explained Todd Rosenbluth, head of research at TMX VettaFi, a consultancy. “These pending downside protection ETFs will allow more people to add bitcoin exposure to their portfolios in a risk-aware manner.”
Innovator ETFs’ Chief Investment Officer Graham Day highlighted that the extreme losses Bitcoin sometimes experiences—up to 70% in a single quarter—have long deterred financial advisers. These new ETFs, Day argues, could “smooth out” the risks, making Bitcoin more palatable for mainstream investment portfolios.
If the SEC approves, the first of these ETFs could debut as early as February 2024. However, the report cautioned that challenges such as position limits on options contracts might arise if demand exceeds capacity.
Meanwhile, Bitwise Asset Management, a leading crypto asset manager overseeing over $11 billion in client assets, is making strides to broaden its cryptocurrency investment options. The firm has filed a proposal with the SEC for a new exchange-traded product (ETP) that combines direct exposure to spot Bitcoin and Ether, the two largest cryptocurrencies by market capitalization.
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