The New ProShares Bitcoin ETF Has a Unique Set of Risks
It will have the same characteristics as a commodities fund, meaning investors will need to understand “contango” and “backwardation.”
Is the Bitcoin ETF here to stay?
Photographer: Chris Ratcliffe/BloombergAfter much anticipation, the ProShares Bitcoin Strategy ETF is scheduled to begin trading on Tuesday. To be clear, this isn’t an exchange-traded fund that is backed by actual Bitcoin. Instead, it is backed by futures tied to the cryptocurrency. Before you rush headlong into this market, it’s important to understand that there are crucial differences.
The vast majority of commodity-based mutual funds and ETFs and are also backed by futures, but that’s because the actual physical storage of most commodities is impractical, like with oil. Also, with almost all commodities most of the trading action and liquidity tends to happen in the futures market, not the spot market. The United States Oil Fund LP is the classic example of a commodity fund that is backed by futures. The fund earned some notoriety in 2020 when it scrambled to roll its futures contracts out the curve (in violation of its prospectus) in order to prevent the fund’s bankruptcy in the event that the price of oil went negative — which it did.