Yuichiro Chino
- Bitwise CEO Matt Hougan announced on Twitter on Wednesday his company had withdrawn its bitcoin futures application.
- Bitcoin futures ETFs will generally underperform spot bitcoin, he said.
- There are 2 newly approved bitcoin futures ETFs that launched late last month.
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Bitwise Asset Management, a crypto index fund manager, has withdrawn its application for a bitcoin futures exchange traded fund, according to a Twitter announcement by its chief investment officer on Wednesday.
Hougan outlined two other main reasons why the company decided to ditch its request with the regulator. The first was that they believe that it would underperform spot bitcoin because "bitcoin futures have historically traded in contango," Hougan said in a Twitter post.
Hougan explained in an earlier tweet that contango was a term used to describe a market phenomenon where the futures price is higher than the spot bitcoin price. The company said its analysis showed contango could cost investors 5-10% per year before compounding.
The other reason was that a bitcoin futures ETF was proving costly. The US company initially believed it would be possible to hold both futures and Canadian-listed bitcoin exchange traded products in a 1940 Act ETF, Hougan said.
"Tax laws make it costly to gain 100% exposure to futures, so flexibility could have lowered costs. Unfortunately, that's not permitted (at the moment)," he said.
Also, bitcoin futures ETFs had already soaked up all available capacity at futures commission merchants. Hougan said he believed this would ease over time, but for now, it was yet another expense.
"The result? Costs on top of costs, plus added complexity," he said.
The first futures ETFs, offered by ProShares (BITO) and Valkyrie (BTF), were approved by the Securities and Exchange Commission and started trading in October, thereby giving investors exposure to bitcoin without holding the coin.
"None of this means that futures-based ETFs are bad, and $BITO and $BTF are thoughtful versions," Hougan said.
"But we believe most long-term investors would be better served by spot exposure."
The company said it would pursue the goal of a spot bitcoin ETF. Bitwise filed for a bitcoin spot ETF on October 14 with the New York Stock Exchange, according to another Twitter post from Hougan.
"Ultimately, what many investors want is a spot bitcoin ETF. We think that's possible," Hougan said.
Hougan said the first bitcoin spot ETF was filed in 2013. To date, the SEC has rejected every application for these products. Asset manager Valkyrie applied in January this year to list a spot bitcoin fund, but the SEC extended the deadline to January 7, 2022.
Others awaiting approval include US investment group Stone Ridge, WisdomTree, asset manager and SkyBridge hedge fund to name a few, according to Decrypt.
