Will Spot Bitcoin ETF Kill $2B Crypto Futures Funds?

Despite looming competition from "spotcoins," futures-based ETFs' recent gains may fend off threats.

Wealth Management Editor
Reviewed by: Ron Day
Edited by: Lou Carlozo

The potential approval of a spot bitcoin exchange-traded fund in coming days has investors wondering about what may happen to the investment vehicles' older cousin: futures-based crypto ETFs and the approximately $2 billion held in those funds. 

While approval of a spot bitcoin ETF may appear appear to spell doom for crypto futures funds, their solid performance may act as a shield against their demise. While a handful of futures-based crypto ETFs have launched since late 2021, the largestthe $1.6 billion ProShares Bitcoin Strategy ETF (BITO)doubled last year. 

But even funds with much lower asset totals, such as the $70 million VanEck Bitcoin Strategy ETF (XBTF) and the $2.6 million Hashdex Bitcoin Futures ETF (DEFI) gained more than 135% last year. 

Up to this point, the futures-based product has represented the only show in town for investors and financial advisors who want packaged exposure to cryptocurrencies. Thus it might be safe to view a spot product as a direct threat. But not everyone sees a spot bitcoin ETF as the death of futures products. 

Spot Bitcoin vs. Futures-Based ETFs 

Sam Farao, chief executive of Coinweb, acknowledged the futures-based products represent the closest thing to crypto investing through an ETF, but said the futures-based design lends itself to “hedging and speculation.” 

“They can experience price divergence from bitcoin’s spot price, presenting both risks and opportunities depending on market conditions and investment strategies,” he said. “Even with the advent of spot bitcoin ETFs, futures-based crypto ETFs still hold relevance for investors with specific needs and risk appetites.” 

Markus Kraus, who owns the Germany-based online brokerage Trading Verstehen, said it would be a mistake to discount existing futures based crypto ETFs in the wake of a spot product. 

“The futures-based ETFs offer a different risk profile and comply with different regulatory standards,” he said. “Even with the introduction of spot ETFs, futures-based ETFs will continue to have appeal, especially to institutional investors.” 

Kraus added that the volatility of the crypto markets in general begs for a “diversified approach that includes both spot and futures ETFs.” 

Based on the direction of asset flows into BITO, the appetite for futures-based crypto ETFs hasn’t wavered even as the Jan. 10 deadline nears for an SEC final ruling on the first spot bitcoin ETF filing. 

BITO experienced $506 million worth of net inflows last year, including nearly $300 million in the fourth quarter when the odds of a spot product climbed. 

Of course, not everyone is confident futures-based crypto ETFs promise bright future when and if spot products hit the market. 

“Once a spot bitcoin ETF becomes real, these compromise ETFs might face a dilemma,” said Thomas Franklin, chief executive and co-founder of Denmark-based Bitinvestor

“I think asset managers will shift their focus to promote these new spot Bitcoin ETFs,” he added. “Investors will likely follow suit as they naturally move toward a product that actually aims to provide them with unfiltered exposure to bitcoin – which is what they originally wanted.” 

Contact Jeff Benjamin at [email protected] and find him on X at @BenjiWriter        

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.