Popular Science: What is a Bitcoin Spot ETF? What are the differences between spot and futures?
Basic Strategy整理： ChainCatcher
What is an ETF?
An Exchange Traded Fund (ETF) is a fund that can hold a variety of underlying assets and trade on an exchange like a stock. Since the first ETF was listed in the United States in 1993, ETFs have transformed investment channels, providing a low-cost and transparent way to invest in various asset classes.
ETFs can include various types of investments, from single commodities to large amounts of stocks or bonds.
Bitcoin ETF is a single commodity ETF
Single commodity ETFs represent a unique area within the ETF space. Unlike diversified ETFs that hold a basket of different assets, single commodity ETFs direct investments to a specific commodity, such as Bitcoin, gold, silver, oil, or agricultural products.
By focusing on a single commodity, these ETFs simplify the complex process for individual investors seeking to enter a specific niche market without directly holding the underlying asset.
For example, if an individual investor wants to participate in oil price trading, storing several barrels of crude oil and trading based on their views of oil prices would be very cumbersome (if not impossible). Oil ETFs track the price of relevant oil indices and trade on exchanges, providing liquidity and ease of entry and exit without the complexities of directly holding oil. A spot Bitcoin ETF offers the same investment model for Bitcoin.
Spot ETF vs Futures ETF
Bitcoin ETFs can be broadly categorized into two types: spot and futures. Spot Bitcoin ETFs directly hold Bitcoin, and their value reflects the current price of the digital asset. In contrast, futures Bitcoin ETFs invest in contracts that speculate on the future price of Bitcoin, providing price exposure without the need to directly own the asset.
The table below summarizes the differences between spot and futures Bitcoin ETFs and intuitively leads to the conclusion that "spot ETFs are better":
Dimensions for Comparing Current Market Spot Bitcoin ETFs
Overall, considerations when comparing such ETFs include:
1. Custody and Security
Different ETF providers may adopt different custody methods (i.e., storage and security of Bitcoin). Key considerations include the custodian's track record and reputation, the type of wallets used (offline "cold" storage vs. online "hot" wallets), existing security protocols, and insurance coverage.
2. Cash Purchase vs Physical Redemption
For retail investors, the distinction between cash purchases and physical redemptions of ETF units may seem subtle. However, for larger transactions, some ETF providers may allow authorized participants to use actual Bitcoin for these processes. This physical method is subject to regulatory frameworks and may impact market dynamics and liquidity.
3. Fees
Fees represent the annual operating costs of the ETF and are an important factor to consider. While fees (e.g., 1.0%) may seem insignificant, even small differences in fees can accumulate to substantial amounts over a long holding period. For example, for an initial investment of $10,000, a 0.5% fee difference over a 20-year holding period could result in a $6,400 difference in returns (assuming an annual return rate of 10.0%).
Currently, most Bitcoin spot ETF issuers choose fees ranging from 0.19% to 0.30%, and Ethereum ETF issuers may do the same.
4. Tracking Error - Accuracy of Tracking Performance
Tracking error is an important metric that measures how closely the performance of the ETF aligns with the actual price movements of Bitcoin. A lower tracking error indicates a more accurate reflection of Bitcoin's market performance, which is crucial for investors seeking exposure to Bitcoin prices.
