 What is a Bitcoin futures ETF? 
2025-01-17
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 Bitcoin futures contracts, explained 
A financial agreement to purchase or sell an item, such as wheat, oil or Bitcoin, at a predetermined price on a given future date is known as a futures contract.
These contracts are used for both risk management (hedging) and speculation on price movements. Let’s understand what this means with an example:
Imagine a miner (seller) expects to mine 10 Bitcoin BTCUSD in three months. Worried about a potential price drop, the miner enters a futures contract to sell 10 BTC at $90,000 per BTC three months from now. This locks in $900,000 in revenue, regardless of the Bitcoin’s market price in three months. This is a common hedging strategy.
A trader (buyer), believing Bitcoin’s price will rise even higher, agrees to buy 10 BTC in three months at $90,000 per BTC.
Scenario 1: Bitcoin’s price rises above $90,000
If Bitcoin’s price rises to, say, $95,000 in three months, the buyer (trader) who bought the futures contract at $90,000 has a potential profit. Here’s how they can realize it:
Scenario 2: Bitcoin’s price drops below $90,000
If Bitcoin’s price drops to, say, $85,000 in three months:
Again, the trader has a few options:
In essence, futures trading is about predicting future price movements. If the prediction is correct, the buyer profits by closing their position at the higher market price or through cash settlement. In contrast, if the forecast is wrong, incur a loss when closing the position or through cash settlement.
The same applies to the seller — they can close the position before expiry if they find it an advantageous deal.
Can buyer and seller avoid their fulfillment?
Futures contracts do not have a “let it expire” option like in options trading. This means both the buyer and the seller of a futures contract can avoid fulfilling the contract by closing out their position before the expiration date. This is done by entering an offsetting trade: 
By doing this, they “cancel out” their obligation to pay the contract, and the price difference between the original contract and the offsetting trade determines their profit or loss.
 Bitcoin futures ETF, explained 
A Bitcoin futures ETF is a type of investment fund that invests in Bitcoin futures contracts instead of directly holding BTC. 
This kind of exchange-traded fund (ETF) provides exposure to Bitcoin price changes by tracking Bitcoin futures contracts, eliminating the need for investors to directly purchase, hold or manage the underlying cryptocurrency and its associated complexities.
Consider it as placing a bet on the future value of Bitcoin via a regulated fund. You’re investing in how the price of Bitcoin is predicted to fluctuate based on the futures market rather than actually owning it. 
For instance, the value of an ETF increases when the underlying futures contracts rise in value, often driven by the expected growth in Bitcoin’s price. This allows you to benefit from Bitcoin’s success indirectly, without the need to manage the risks and complexities of securing or handling your own wallet.
Now, you might be wondering: How do Bitcoin futures contracts differ from Bitcoin futures ETFs?
The table below highlights the key distinctions between the two.

 How does a Bitcoin futures ETF work? 
A Bitcoin futures ETF tracks Bitcoin’s price movements by purchasing Bitcoin futures contracts, which reflect the value of Bitcoin without direct ownership, and includes the process of rolling contracts when they near expiration, affecting the ETF’s performance.
Let’s break down how a Bitcoin futures ETF works step-by-step with an example, assuming Bitcoin’s current price is $93,425.
The ETF buys futures contracts (let’s say in January)
Scenario 1: Bitcoin’s price increases to $100,000 
Scenario 2: Bitcoin’s price drops to $90,000
Rolling contracts 
The cost of rolling
Throughout this process, shares of the ETF are traded on stock exchanges. Investors can buy and sell these shares just like any other stock. This is the key advantage: Investors get exposure to Bitcoin’s price movements without needing to:
 How to invest in a Bitcoin futures ETF 
Investing in a Bitcoin futures ETF is straightforward and works similarly to buying shares of any other ETF. 
The key steps involved in investing in a Bitcoin futures ETF include:
Key considerations before investing
Did you know? BITO was the first Bitcoin futures ETF to be approved in the US, launching in October 2021.
 Benefits of Bitcoin futures ETFs 
Bitcoin futures ETFs provide several advantages, making them an appealing option for investors looking to gain exposure to Bitcoin without directly buying or holding the cryptocurrency.
Let’s understand what those pros are:
 Risks and considerations 
Although Bitcoin futures ETFs provide regulatory control and accessibility, investors should be aware of the risks, such as tracking error and volatility, among others.
Here’s a bit more detail on these risks and considerations:
Investors should carefully consider these risks and ensure the ETF fits their risk tolerance and financial objectives.