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The first U.S. bitcoin futures exchange-traded fund will launch on Tuesday, a milestone for the cryptocurrency industry, and others may soon follow.
The long-awaited ProShares ETF will offer exposure to bitcoin futures contracts — agreements to buy or sell the asset later for an agreed-upon price — rather than bitcoin itself.
“The ETF presents a disruption to what is available in the marketplace today,” said Karan Sood, CEO and managing director of Cboe Vest, a financial advisory platform in McLean, Virginia. “That’s what investors are excited about.”
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Currently, investors may buy bitcoin through digital currency exchanges, but there are safety concerns as some worry about hackers or losing so-called private keys, which provide access to their assets.
Another option, bitcoin trusts, offer an easier way to add bitcoin to portfolios through brokerage or retirement accounts. But these assets may come with higher fees and values may not mirror the digital currency price changes.
While bitcoin futures ETFs don’t offer what the industry eventually wants — funds that invest directly in digital currency — it provides another choice as companies vie for the green light from the Securities and Exchange Commission to launch regular bitcoin ETFs.
The price of bitcoin jumped more than 2% on Monday to $61,958.24, according to Coin Metrics.
There are a few things prospective investors need to consider before piling money into bitcoin futures ETFs, financial experts say.
Although the funds may have a “very high correlation” with bitcoin, the asset won’t mirror values of the digital currency because it tracks the price of future contracts, Sood said.
It’s just the ultimate risk that you would ever take.Jordan BenoldPartner at Benold Financial Planning
Moreover, it costs more to own funds over individual assets. But some investors are willing to pay more for an ETF’s “institutional level liquidity, custody and execution” versus managing the currency themselves, he said.
Still, some advisors see digital currencies as a speculative asset and say betting on prices of futures contracts can be unpredictable.
“It’s just the ultimate risk that you would ever take,” said certified financial planner Jordan Benold, partner at Benold Financial Planning in Prosper, Texas, explaining how the volatility of bitcoin paired with futures contracts may be a gamble. “You’re really into high-stakes poker at this point.”
Bitcoin’s value comes from supply and demand factors of an “unstable and unpredictable group of market participants,” making it inappropriate for an investment portfolio, said CFP Anthony Watson, founder and president of Dearborn, Michigan-based Thrive Retirement Specialists.
However, if someone’s retirement savings and other goals are on track, and they have “fun money” they want to invest in bitcoin futures, some advisors wouldn’t discourage a minimal amount of experimenting.
“I would just say do it on a very, very small scale,” Benold said. “Dip your toe into the water.”