21 Oct Bitcoin futures ETF in danger of hitting upper limit for contracts
The futures market for bitcoin has hit its maximum number of contracts, and it is unclear if the SEC will approve another ETF in time to meet demand.
The what are etfs stocks is a question that has been asked many times. A new ETF for Bitcoin futures, the Winklevoss Bitcoin Trust, was approved by the SEC but it may be limited to only 100 contracts.
After rapidly becoming a bit too popular, the ProShares Bitcoin Strategy ETF is on pace to exceed a restriction on the amount of futures contracts it may hold.
The ProShares ETF has sold 1,900 contracts for October after just a few days of trading, exceeding the Chicago Mercantile Exchange’s 2,000 front-month limit.
According to Bloomberg, there are already 1,400 contracts for November, with a total maximum limit of 5,000 open contracts. Longer contracts may be one option, but this would risk putting too much distance between BTC prices.
Nate Geraci, president of the consulting company the ETF Store, said that the fund’s price may begin to deviate from market values, adding:
“As it moves farther out on the futures curve, the ETF is obliged to acquire Bitcoin price exposure at higher and higher prices.”
The introduction of rival products such as the Valkyrie Bitcoin Strategy ETF, which will begin trading today, and the VanEck ETF, which will begin trading on Monday, Oct. 25, may dilute demand for the ProShares fund.
The ProShares ETF, according to Cointelegraph, is the first-ever fund to reach $1 billion in assets under management in only two days. It broke an 18-year-old record set by a gold-based fund that completed the task in three days.
Eric Balchunas, a senior ETF analyst at Bloomberg, believes the momentum will be difficult to halt at this stage.
“The extraordinary early volume in BITO is like a snowball rolling downhill, as liquidity and assets produce more liquidity and assets.”
As crypto values hit new highs, the VanEck Bitcoin Strategy ETF is expected to debut next week.
The success of Bitcoin futures products, according to Balchunas, may hasten the approval of a spot-based Bitcoin ETF.
“Both the popularity and general operation of ETFs, as well as the obvious problem of futures’ prospective capacity, may persuade the SEC to rethink or figure out a route for spot.”
Grayscale has foreseen this, according to Cointelegraph, and is planning to transform its popular Bitcoin Trust into a physically-backed product based on spot markets.
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