Spot Bitcoin ETFs on the Horizon: Will They Eclipse $2 Billion Crypto Futures Funds?

Spot Bitcoin ETFs 

The impending approval of a spot bitcoin exchange-traded fund (ETF) has sparked speculation about the fate of its counterpart, the futures-based crypto ETFs, and the approximately $2 billion invested in these funds. While the allure of spot bitcoin ETFs is undeniable, the robust performance of futures-based crypto ETFs may act as a resilient shield against their potential demise.

The Rise of Futures-Based Crypto ETFs:

Despite the emergence of spot bitcoin ETFs, futures-based counterparts have demonstrated solid performance. Notably, the ProShares Bitcoin Strategy ETF (BITO), the largest in the category with $1.6 billion in assets, doubled in size in the past year. Even smaller funds like the VanEck Bitcoin Strategy ETF (XBTF) and the Hashdex Bitcoin Futures ETF (DEFI), with $70 million and $2.6 million in assets respectively, gained over 135% in 2023.

Spot vs. Futures: A Complex Landscape:

While futures-based crypto ETFs have been the primary choice for investors seeking packaged exposure to cryptocurrencies, the advent of spot bitcoin ETFs introduces a nuanced dynamic. Sam Farao, CEO of Coinweb, acknowledges the unique features of futures-based products, highlighting their susceptibility to price divergence from Bitcoin's spot price due to hedging and speculation. However, he asserts that these ETFs maintain relevance for investors with specific needs and risk appetites.

Diverse Risk Profiles:

Markus Kraus, owner of Trading Verstehen, emphasizes that futures-based ETFs offer a distinct risk profile and adhere to different regulatory standards compared to spot ETFs. Despite the introduction of spot ETFs, he predicts that futures-based ETFs will continue to attract institutional investors, providing a diversified approach to navigating the inherent volatility of crypto markets.

Investor Appetite and Asset Flows:

Examining the asset flows into BITO, the largest futures-based crypto ETF, reveals a sustained appetite for these products. BITO experienced $506 million in net inflows last year, with a significant surge of nearly $300 million in the fourth quarter amid growing expectations of a spot product approval by the SEC.

The Future Landscape:

While some remain confident in the enduring appeal of futures-based crypto ETFs, others foresee a potential shift in focus towards spot bitcoin ETFs once realized. Thomas Franklin, CEO and co-founder of Bitinvestor, anticipates asset managers redirecting their attention to promote spot ETFs, predicting investors will naturally gravitate towards products offering unfiltered exposure to bitcoin, aligning with their original intent.

Conclusion:

As the crypto market anticipates the SEC's decision on spot bitcoin ETFs, the coexistence and competition between spot and futures-based crypto ETFs add complexity to the investment landscape. Investors, guided by diverse risk appetites and strategic preferences, will navigate this evolving terrain shaped by the interplay of regulatory decisions and market dynamics.