BITO ETF Bitcoin: Seems like a waste of money buying these
Updated
SUMMARY: Don't touch, these are inefficient financial instruments and one is better off buying and owning Bitcoin itself.
There is a huge administrative cost to owning an ETF, in addition to the costly futures contract that underlies it.
The fund portfolio manager needs to paid; the exchanges need to be paid for opening the futures contracts, there is large basis risk as they need to roll the positions forward every quarter. On top of the fact, futures exchanges are closed on the weekend whilst Bitcoin trades 24/7. Huge tracking risk, especially if BTC was to crash after the futures exchange closed on a Friday.
Additional fees include auditors, custodian bank, pay for expensive compliance teams to monitor the positions and report daily to the regulators.
OR!
One can buy the BTC direct and avoid the aforementioned BS. Just as Bitcoin was intended to be owned.
Own BTC directly, means 100% of the gains belong to you!
AND! it is less risky.
There is a huge administrative cost to owning an ETF, in addition to the costly futures contract that underlies it.
The fund portfolio manager needs to paid; the exchanges need to be paid for opening the futures contracts, there is large basis risk as they need to roll the positions forward every quarter. On top of the fact, futures exchanges are closed on the weekend whilst Bitcoin trades 24/7. Huge tracking risk, especially if BTC was to crash after the futures exchange closed on a Friday.
Additional fees include auditors, custodian bank, pay for expensive compliance teams to monitor the positions and report daily to the regulators.
OR!
One can buy the BTC direct and avoid the aforementioned BS. Just as Bitcoin was intended to be owned.
Own BTC directly, means 100% of the gains belong to you!
AND! it is less risky.
Note
I just wanted to quickly talk to you about those Bitcoin ETFs. Something that I have always maintained is that the current futures backed ETFs are suboptimal. Indeed, this is something that many in the crypto space have been saying since its launch.
However, at the time of this launch, it was hard to come by some quantitative measure on how inefficient they would be. We did not have CME futures backed ETFs so we couldn't get a reliable estimate.
Yet, given that it's been over 3 months of trading, there is enough evidence to show just how badly they have been underperforming spot in general.
About 2 weeks ago, Invesco pulled their Futures ETF application despite investing extensive time and effort in filing. (Link below)
ft.com/content/6c0a843b-0491-4b31-9ce0-60ad88cbc5f7
Some of the reasons came down to the cost of administering Futures backed ETFs (legal, administrative, counterparty fees etc).
But, the main issue that they had was the suboptimal performance of the instrument over the longer term based on cost of rolling near dated futures contracts.
They calculated the cost as between 0.6-0.8% per month which annualised is between 5-10% over the year.
You should also note that BTC futures become that much more "contango" when prices are rallying. So, we could see yearly underperformance on the ETFs at over 10% if the markets do indeed rally in the next few months.
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