What Investors Should Know About Bitcoin Futures
October 20, 2021
"Considering a fund or ETF that invests in bitcoin futures? It’s important to understand that an investment in a Bitcoin futures fund or ETF is not the same thing as buying Bitcoin directly.
Futures contracts are financial instruments whereby two parties agree to buy and sell an asset of a specific quantity at a predetermined price, and at a specified date in the future, the expiry date.
Prior to expiry, a fund or ETF will typically close an open position and use the proceeds to establish a new position in a futures contract with a later date. This is known as “rolling the contract” and it’s a source of potential positive or negative return in addition to the change in spot price of the underlying asset over the term of the contract.
When the price of longer-dated futures contracts are lower than the current spot price the process of rolling into a new contract means the fund is able to buy more contracts with the same amount of money and therefore it can be a positive source of return. This is referred to as being in a state of backwardation. In contrast, if the price of a longer-dated futures contract is higher than the current spot price then the process of rolling a contract can detract from returns and this is referred to as being in a state contango.
In its short history, Bitcoin futures have generally been in a state of contango and given the high demand and price volatility of bitcoin itself the differences between futures prices and spot prices can be wide ranging.
So, while the return from Bitcoin futures may highly correlate to spot Bitcoin, the dynamics of rolling futures contracts may cause your actual return to differ significantly from spot Bitcoin."
The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.
Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.
Futures carry additional risks and are not suitable for all investors. Before Investing in Bitcoin Futures Contracts, make sure you carefully weigh the potential risks and benefits.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
Investing in cryptocurrencies, such as Bitcoin, comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.
- Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
- An investment in cryptocurrency is not suitable or desirable for all investors.
- Cryptocurrency has limited operating history or performance.
- Fees and expenses associated with a cryptocurrency investment may be substantial.
There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies.
Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation. © Van Eck Securities Corporation.
Van Eck Associates Corporation
666 Third Avenue, New York, NY 10017
February 1, 2022
January 13, 2022
January 7, 2022
December 28, 2021
December 28, 2021
December 28, 2021
October 1, 2021
October 1, 2021
October 1, 2021
August 11, 2021