TL;DR
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The Bitcoin ETF everyone wants right now = a ‘spot’ ETF. The Bitcoin ETF we get instead = a leveraged futures ETF. (The latter is much riskier for investors).
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Ok, but why the ‘drama’? Well, in the US, the SEC has repeatedly rejected all applications for a Bitcoin ‘spot’ ETF – because they were too risky to be allowed.
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But they just approved a leveraged Bitcoin futures ETF – the riskiest beast of them all!
Full story
The Bitcoin ETF everyone wants right now = a ‘spot’ ETF.
The Bitcoin ETF we get instead = a leveraged futures ETF.
…cool, what does that even mean??
A spot ETF invests in Bitcoin ‘on the spot’ – you buy shares in the fund → the fund uses your money to buy Bitcoin.
A Bitcoin futures ETF buys “futures contracts,” or agreements to buy or sell Bitcoin at a fixed price on a specific date in the future.
(Basically, you are placing a bet on Bitcoin’s future price).
Why are you doing this? Usually to hedge your bets.
Let’s say you think BTC will rise in 28 days… but as a smart investor you know that nothing is certain in this world and that BTC could even fall.
So you buy a contract that guarantees that someone will buy a share of your BTC at current prices.
(So if BTC fell, you’d still lose – but not that bad).
These bets are riskier as you agree to buy/sell on a fixed date meaning that if things don’t go your way you can’t just wait.
Leveraged Bitcoin Futures ETFs take that risk and call it up.
They say ‘hey, why don’t we take out loans so we can double the amount we put in here?’.
That’s great if the bets placed are ultimately correct! But dangerous if they miss – because they double any losses.
Do you need us to make it happen? OK, think about it this way…
Let’s say you buy $10,000 worth of Pokemon Cards, assuming they will grow in value.
(Risky, but hey – you do you).
You are so sure of yourself that you then take out a $10,000 loan to buy even more Pokemon Cards – bringing your total investment to $20,000.
Before you know it, the value of the cards goes to zero – and not only have you lost $10,000 of your own money, but you now owe your lender $10,000.
Point is: without the loan, the worst that can happen is that you turn your investment into $0. Of the loan, you can convert it to -$10k.
(Leveraging carries risk).
Ok, but why the ‘drama’?
Well, in the US, the SEC has repeatedly rejected all applications for a Bitcoin ‘spot’ ETF – because they were too risky to be allowed.
But they just approved a leveraged Bitcoin futures ETF – the riskiest beast of them all!
¯\_(ツ)_/¯
