Ever since SEC chairman Gary Gensler pointed out that regulators may be more positive on crypto products linked to Bitcoin futures, issuers have proposed a number of futures-based ETFs.
Such products hold Bitcoin futures contracts and not actual Bitcoin or Bitcoin-related stocks. To give investors continued exposure to Bitcoin futures, most futures-based funds will “roll” their futures contracts before they expire – but what does that mean?
Rolling Bitcoin Futures: The Basics
Bitcoin futures contracts are standardized agreements to buy or sell a certain amount of Bitcoin for a certain price.
Bitcoin futures contracts are traded on the Chicago Mercantile Exchange and are cash settled, which means that whoever holds the contract at expiration will receive cash rather than a physical delivery of the underlying asset.
Futures contracts are rolled by investors who are interested in constant exposure to a particular market with a similar risk position. Consistent exposure to Bitcoin futures enables investors to hedge against any direct exposure to Bitcoin.
Rolling involves two steps: closing a contract, usually a contract just before the expiration date, and simultaneously buying the same futures contract with a later expiration date.
The sale of the nearly expired contract and the purchase of the next contract are usually done at the same time to reduce slippage.
Get exposure to Bitcoin futures with the Bitcoin Strategy ProFund (BTCFX)
Although numerous issuers have applied for Bitcoin futures ETFs, the SEC has yet to decide on one of the crypto products currently under review.
For those looking to get exposure to bitcoin futures, mutual fund providers offer it ProFunds offers a mutual Bitcoin futures fund, the first publicly available fund of its kind in the United States
The Bitcoin Strategy ProFund (BTCFX), which was launched at the end of July, invests not only in short-term cash instruments such as US Treasury Bills and repo transactions, but primarily in Bitcoin futures contracts traded on the CME. In unusual market conditions, BTCFX may invest in ETPS or Canadian ETFs that are traded in Canada.
The futures contracts in which BTCFX mainly invests are “front month contracts”. Front month contracts are the contracts that are closest to their expiration date and are therefore closest to the current spot price of the underlying asset, as in this case Bitcoin.
BTCFX aims to provide investors with a more convenient and less volatile way to get involved in the Bitcoin market than buying and holding Bitcoin directly.
For more news, information and strategies, visit the Crypto Channel.