TL;DR
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The Bitcoin ETF everyone wants right now = a ‘spot’ ETF. The Bitcoin ETF we’re getting 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 denied any applications for a Bitcoin ‘spot’ ETF – saying they’re too risky to be allowed.
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But they’ve 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’re getting 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 either buy or sell Bitcoin at set price on a specific date in the future.
(Basically, you’re placing a bet on the future price of Bitcoin).
Why do this? Typically to hedge your bets.
E.g. Say you think BTC is going to go up in 28 days time…but being the smart investor you are, you know nothing is certain in this world, and BTC could actually go down.
So you buy a contract that guarantees someone will buy a chunk of your BTC at today’s prices.
(So if BTC were to drop, you’d still lose out – but not as badly).
These bets are riskier, because you’re agreeing to buy/sell on a set date, which means if things don’t go your way, you can’t just wait things out.
Leveraged Bitcoin Futures ETFs take that risk and dial it up.
They say ‘hey, why don’t we take out some loans, so we can double the amount of money we’re betting here?’.
Which is great if the bets being placed end up being correct! But dangerous if they miss – because they double any losses.
Need us to make it real? Ok, think of it like this…
Say you buy $10k worth of Pokemon Cards, thinking they’ll grow in value.
(Risky, but hey – you do you).
You’re so sure of yourself that you then take out a $10k loan, to buy even more Pokemon Cards – bringing your total investment to $20k.
Next thing you know, the value of the cards goes to zero – and you’ve not only lost $10k of your own money, but you now owe your lender $10k.
Point is: without the loan, the worst that could happen is you turn your investment into $0. With the loan, you can turn it into -$10k.
(Leverage brings risk).
Ok, but why the ‘drama’?
Well, in the US, the SEC has repeatedly denied any applications for a Bitcoin ‘spot’ ETF – saying they’re too risky to be allowed.
But they’ve just approved a leveraged Bitcoin futures ETF – the riskiest beast of them all!
¯\_(ツ)_/¯
