First Calculation of Annualized Rollover Cost for Bitcoin Futures ETF by Bloomberg Analyst
Bloomberg ETF analyst Athanasios Psarofagis pointed out on his Twitter account the estimated annualized roll cost of the newly unveiled futures-backed Bitcoin ETF, which is estimated at 11%.
Where does 11% come from?
The rolling cost of the Bitcoin Futures-backed ETF will always be relatively higher than the rolling cost of any physically-backed crypto ETF. Due to the foundation of the exchange-traded fund itself, ProShares has to close this month’s futures and buy the next month’s contracts, which usually cost more due to the “contango.”
Futures contracts that trade closer to the expiration date generally cost less than futures contracts later. Due to this effect, almost any futures-backed ETF buys futures high and sells them low compared to the spot asset.
The annual turnover cost is calculated by comparing the difference between the daily close of different futures contracts. In the case of the BITO ETF, Bloomberg ETF analysts compared November and December Bitcoin futures contracts.
The problem with ETFs backed by futures
In addition to the aforementioned contango issue, Bitcoin ETFs that are based on Bitcoin derivatives rather than the actual asset can pose problems for investors looking to gain direct exposure to the crypto market through futures contracts. But sometimes future contracts exceed the underlying asset’s price, which puts some investors into loss almost as soon as they enter the market.
There is only one solution to the problems with futures-backed ETFs, and that is the approval of a physically-backed Bitcoin ETF that will track the cash asset rather than its by-products.
Unfortunately, the SEC has not yet given any signs of potential approval of physically-backed Bitcoin ETFs. Various experts point out that the main problem with these is the unregulated nature of the cryptocurrency market.
