What Is a Bitcoin Futures ETF?

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For those who know, before spot Bitcoin Exchange Traded Funds (ETFs) became the thing, there was Bitcoin Futures ETFs. In fact, as far back as October 2021, the first U.S. Bitcoin Futures ETF—ProShares Bitcoin Strategy ETF (ticker: BITO)—began trading on the New York Stock Exchange. Within just two days, it amassed over $1 billion in assets.

Since then, Bitcoin Futures ETFs have remained a key financial instrument, especially for institutional investors looking to gain exposure to Bitcoin without directly holding the asset. Even with the launch of spot Bitcoin ETFs in early 2024, futures-based funds continue to attract interest, as they offer unique benefits such as cash-settled contracts and regulatory protections under the Commodity Futures Trading Commission (CFTC). Notably, issuers have expanded their offerings, integrating more advanced trading strategies, including leveraged and inverse Bitcoin Futures ETFs, to cater to different market sentiments.

As Bitcoin’s market dynamics evolve, Bitcoin Futures ETFs remain a significant part of the investment landscape, providing an alternative route for traders who prefer exposure through derivatives rather than spot assets. But how exactly do these ETFs function, and what makes them different from directly investing in Bitcoin? Let’s break down how Bitcoin Futures ETFs work.

How Do Bitcoin Futures ETFs Work?

Bitcoin Futures ETFs are designed to give investors exposure to Bitcoin’s price movements without requiring them to directly buy or hold the cryptocurrency.

Unlike spot Bitcoin ETFs, these funds do not hold Bitcoin directly. Instead, they track Bitcoin’s price movements through regulated futures contracts. These contracts derive their value from Bitcoin’s expected future price rather than its current market price. For example, a Bitcoin Futures ETF might purchase a futures contract agreeing to buy Bitcoin at $30,000 in one month. If Bitcoin’s price rises to $35,000 by then, the fund profits from the price difference.

However, the price of a Bitcoin Futures ETF does not always align perfectly with Bitcoin’s spot price. Market phenomena such as “contango” (when futures prices exceed spot prices) and “backwardation” (when futures prices are lower than spot prices) can create discrepancies. These factors influence the ETF’s performance and can lead to gains or losses for investors.

Like traditional ETFs, Bitcoin Futures ETFs issue shares that investors can buy and sell on stock exchanges. These shares represent ownership in the fund, which is actively managed and tied to the performance of Bitcoin futures contracts.

How to Invest in a Bitcoin Futures ETF

Investing in a Bitcoin Futures ETF is a simple process that mirrors how investors purchase shares of traditional exchange-traded funds (ETFs). These funds trade on major stock exchanges, allowing investors to gain exposure to Bitcoin’s price movements without directly owning the cryptocurrency.

Here’s a step-by-step guide on how to invest in a Bitcoin Futures ETF:

1. Choose a Brokerage or Trading Platform

To invest in a Bitcoin Futures ETF, you’ll need access to a brokerage account. If you don’t already have one, sign up with a brokerage firm or trading platform that offers ETFs. Many platforms, including those that cater to retail and institutional investors, provide access to Bitcoin Futures ETFs.

2. Fund Your Investment Account

Once your brokerage account is set up, deposit funds into it. Most brokers accept various funding methods, including bank transfers, wire transfers, and even credit or debit card payments. Ensure that you have enough capital to cover your intended investment and any associated trading fees.

3. Research Available Bitcoin Futures ETFs

There are multiple Bitcoin Futures ETFs available, each with different strategies, fee structures, and risk levels. Some funds focus purely on Bitcoin futures contracts, while others incorporate additional assets like blockchain-related stocks or fixed-income instruments. A few popular Bitcoin Futures ETFs include:

ProShares Bitcoin Strategy ETF (BITO) – One of the first and most widely traded Bitcoin Futures ETFs.
Valkyrie Bitcoin and Ether Strategy ETF (BTF) – A fund that provides exposure to both Bitcoin and Ethereum futures.
Global X Blockchain & Bitcoin Strategy ETF (BITS) – A fund that combines Bitcoin futures with investments in blockchain-related companies.

For investors looking to take bearish positions, there are also inverse ETFs such as:

ProShares Short Bitcoin ETF (BITI) – A fund designed to profit when Bitcoin’s price declines.

4. Place Your Trade

Using your trading platform, search for the ticker symbol of the Bitcoin Futures ETF you want to invest in. Enter the number of shares you’d like to purchase and review the order details before executing the trade.

5. Monitor Your Investment

After purchasing shares, track your ETF’s performance regularly. Keep an eye on Bitcoin price trends, futures market conditions, and factors like “contango” or “backwardation.” As mentioned earlier, these factors can impact a futures ETF’s efficiency in tracking Bitcoin’s price.

Advantages of Bitcoin Futures ETFs Over Direct Bitcoin Investment

Investing in Bitcoin Futures ETFs has several advantages over directly purchasing Bitcoin.

Unlike buying Bitcoin directly, which requires using cryptocurrency exchanges, managing private keys, and securing a digital wallet, Bitcoin Futures ETFs make the process straightforward. You can purchase shares through a standard brokerage account, just like any other ETF.

Because Bitcoin Futures ETFs operate like conventional ETFs,there are a comfortable choice for those accustomed to trading stocks or ETFs. They don’t need to learn the intricacies of the cryptocurrency world. These ETFs allow for quick buying and selling of shares during standard market hours. This makes it easier to enter or exit positions compared to the slower, more complex processes often associated with cryptocurrency exchanges.

Bitcoin Futures ETFs are regulated by agencies like the U.S. Securities and Exchange Commission (SEC) and are traded on traditional stock markets. This level of oversight provides more protection and transparency compared to the largely unregulated cryptocurrency space.

Risks Involved in Investing in Bitcoin Futures ETFs

Asides the price tracking issue, there are other kinds of risks that investors should carefully consider when deciding whether to invest in Bitcoin Futures ETFs or not.

Rolling Costs

Futures contracts have expiration dates, requiring ETF managers to “roll” contracts forward—selling expiring contracts and buying new ones. This process can introduce additional costs, particularly if the new contracts are priced higher than the expiring ones, a scenario known as negative roll yield. Over time, these rolling costs can erode returns, making Bitcoin Futures ETFs less profitable compared to direct Bitcoin investments.

Leverage and Volatility Risks

Bitcoin is inherently volatile, and futures-based ETFs may amplify this volatility. Some ETFs use leverage to enhance returns, which can lead to significant gains but also magnify losses. Additionally, high volatility can cause abrupt price swings, affecting the stability and predictability of the ETF’s value.

Security and Counterparty Risks

Although Bitcoin Futures ETFs eliminate the risks associated with holding Bitcoin directly (such as private key loss or cyber theft), they are not entirely free from security concerns. Futures contracts are traded on regulated exchanges, but there is still counterparty risk—if a clearinghouse or brokerage fails to meet its obligations, it could impact the ETF’s value. Additionally, some ETFs rely on financial institutions to manage and store assets, which may introduce operational risks, including fraud or cyberattacks.

Regulatory and Tax Implications

Bitcoin Futures ETFs operate under strict regulatory frameworks, which can change over time. Governments and regulatory bodies may impose new restrictions, affecting the fund’s ability to operate efficiently. Tax treatment of futures-based ETFs can also be complex, with potential implications for capital gains taxes that differ from direct Bitcoin holdings. Investors should consult tax professionals to understand how these ETFs fit into their financial planning.

Market Liquidity and Trading Costs

The liquidity of Bitcoin futures contracts directly impacts the ETF’s trading efficiency. If the futures market becomes illiquid, investors may experience wider bid-ask spreads, making it more expensive to buy or sell ETF shares. Additionally, ETFs typically involve management fees, expense ratios, and potential trading commissions, all of which can reduce overall returns.

Conclusion

Bitcoin Futures ETFs bridge the gap between traditional finance and the burgeoning world of cryptocurrency. They offer a regulated, accessible way for investors to gain exposure to Bitcoin’s price movements without diving into the complexities of direct crypto ownership.

However, these ETFs come with their own set of challenges, from pricing discrepancies to rolling costs. As they continue to gain traction, their impact on Bitcoin’s price volatility and the broader crypto market will be closely watched.

For investors, Bitcoin Futures ETFs provide an exciting opportunity—but like any investment, they require careful consideration of the risks and rewards. Whether you’re a seasoned crypto enthusiast or a newcomer to the space, understanding these ETFs is a step toward making informed financial decisions.

Would you consider adding Bitcoin Futures ETFs to your portfolio?

Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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