Hello there! Think of this as the crypto edition of ETF Wrap.

And it is hard to blame us for being in a crypto state of mind, after the debut of the U.S.’s first bitcoin-linked exchange-traded fund. The new product offered by the folks at ProShares has helped to spark a rally to new heights for bitcoin
$66, 974.77 (Ether

on the Ethereum blockchain also notched a record), according to CoinDesk.

But is buying a bitcoin ETF worth it — especially one that is futures linked and not spot?

That is the question some members of the investment community might be wrestling with since the fund launched Tuesday. With the expectation that there are more such products on the horizon, we’ll explore the pros and cons of investing in a bitcoin ETF — and we’ll even explain to what the term “spot” refers and what futures are.

In any case, please send tips, or feedback, and find me on Twitter at @mdecambre to tell me what we need to be jumping on.

And sign up here for ETF Wrap.

Also, sign up for a brand new MarketWatch newsletter on crypto launching next month. Use this link to subscribe to “Distributed Ledger,” where every week we highlight the most timely news in the crypto and blockchain industry, from developments in digital-asset companies, exchanges, funds and ventures, as well as important sector research and data.

The good
Top 5 gainers of the past week


Amplify Transformational Data Sharing ETF

Global X Copper Miners ETF

Global X FinTech ETF

iShares Semiconductor ETF

VanEck Semiconductor ETF

Source: FactSet, through Oct. 20, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater

…and the bad
Top 5 decliners of the past week


KraneShares Global Carbon ETF

iShares MSCI Brazil ETF

Global X Russell 2000 Covered Call ETF

U.S. Global Jets ETF

VanEck Merk Gold Trust

Source: FactSet

I’m not buying, you’re buying

The actively managed ProShares Bitcoin Strategy ETF

offers exposure to bitcoin without having to worry about “storage,” using so-called private keys and/or digital wallets. Its debut is a watershed moment for crypto — and all that jazz.

On Friday, the Valkyrie Bitcoin Strategy ETF
 which also is based on futures, is slated to make its debut, using the ticker symbol “BTF,” on the Nasdaq Inc.
Other similar products are on the way, including from the VanEck Bitcoin Strategy ETF, ticker symbol “XBTF,” which could also launch at the week’s end on Cboe Global Market’s

BZX Exchange.

However, the new offerings raise a host of questions: Is an ETF the best way to own bitcoin

? What is a bitcoin futures ETF? Can’t I just invest in another crypto-pegged fund or the Grayscale Bitcoin Trust


Gil Luria, technology strategist at D.A. Davidson, told MarketWatch in a Wednesday interview that the first thing to consider, as with any investment, is your risk tolerance and your objectives.

“Crypto assets, including bitcoin, are highly speculative and people should invest only what they are willing to lose and only a limited percentage of their portfolio,” Luria said.

You’ve probably heard that drill before but it bears repeating when it comes to digital assets.

The 12-year-old sector, however, now commands greater attention, boasting a record-setting $2.6 trillion in assets, according to, compared with some estimates for the gold market at around $12 trillion.

The tech strategist also said that arguably the best, most cost-efficient way to own bitcoin or other crypto is directly and said that exchanges like Coinbase Global
Venmo, Square Inc.
Robinhood Markets

and even traditional brokerages like Interactive Brokers Group

offer relatively low-cost ways for the virtual-asset inclined to quench their bitcoin fix.

So, in that respect, Luria’s not a fan of buying something indirectly what you can purchase directly. That is not to say that there isn’t appetite for bitcoin in an ETF wrapper.

The ProShares bitcoin became the second-most heavily traded fund launch on record, with more than 24 million shares changing hands on Tuesday and it has topped $1.2 billion in assets after a mere two days of trading.

Indeed, the bitcoin futures ETF was approved by the Securities and Exchange Commission last week, months after the head of the U.S. regulator, Gary Gensler, suggested over the summer that he would be receptive to approving a futures-linked bitcoin ETF because he says it offers better investor protections than an ETF that is backed by spot crypto.

The term “spot” refers to buying and owning the asset directly as opposed to via futures, which provides indirect ownership of an underlying asset like crude oil

or gold

Advocates of bitcoin have been waiting for a spot bitcoin ETF because they think it is a better way to own crypto than through a derivatives product.

“One of the main problems is it is a futures ETF and not a spot ETF,” said Morgen Rochard, a financial adviser who has an expertise in crypto, referring to the ProShares offering.

A key criticism of a bitcoin futures ETF is that managing futures contracts can be costly, compared with direct ownership.

“The problem with futures is people don’t how futures work,” Rochard said.

Futures are derivatives contracts that give a buyer exposure to price moves in an underlying asset and these contracts usually have monthly expiration dates.

A futures ETF would incur the cost of “rolling” soon-to-expire contracts to future months, which are likely passed on to the end user. Both ProShares and the coming Valkyrie fund have a 0.95 basis point expense ratio. That means it would cost an investor $9.50 annually for every $1,000 invested. The VanEck fund will carry an expense ratio of 0.65%.

In addition to “roll” issues are conditions that are unique within futures known as contango and backwardation that will result in the fund’s performance at points diverging from spot bitcoin values.

When prices for a futures contract are higher for contracts in future months, the market is said to be in contango. That is to say you will pay more to exit out of the expiring contract and into the new one.

Conversely, when shorter-dated contracts cost more than the longer-dated ones, it is referred to as backwardation. Contango is a relatively natural state of most futures markets because investors tend to pay added costs for someone to “store” the underlying asset.

“Because of contango the fund will actually be buying bitcoin at higher prices than the market,” D.A. Davidson’s Luria said. “That means it’s not an efficient way to get exposure to [bitcoin],” the analyst said.

Despite those factors, Luria said that if investors are comfortable with those concepts then a futures ETF might be the next best thing to investing in a spot ETF.

“If you want to get exposure now…it is not a bad way” to test out the market, but prospective investors should know that bitcoin futures are “a suboptimal way to get exposure” to the digital assets, he added.  

Charlie Silver, who helped to create Siren Nasdaq…

Read More:Should I buy a bitcoin ETF? Here’s what some pros say you should consider

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