A Comparison Between ETFs and Bitcoin Futures

ETFs and Bitcoin Futures
Spread the love
62 / 100

The origins of futures trading date back to around 1750 B.C. with the creation of the first legal codes that allowed sales of goods and assets to be delivered for an agreed price at a future date.  The first modern futures exchanges began in the early 1700’s in Japan, in the late 1840’s in Chicago and in the late 1870’s in London.

It wasn’t until 1993 when the first Exchange Traded Fund (ETF) was created.

Both products have become very popular with investors.  For example, the E-mini S&P 500 futures contract is the most liquid stock index futures contract in the world.  At the same time the very first ETF called the Standard & Poor’s Depositary Receipt (SPY) and also tracks the S&P 500, is one of the largest ETF’s in the world.

So, it shouldn’t be unexpected that with the emergence of digital / cryptocurrencies such as Bitcoin in 2009, the arrival of Bitcoin futures and Bitcoin ETF’s followed.  Investors are now able to trade both a pair of Bitcoin futures contracts on CME Globex and a line-up of Bitcoin ETF’s.

There are important differences between the two assets that shed light on the advantages of trading Bitcoin futures over Bitcoin ETF’s.

The first difference concerns the annual expenses/management fess needed to trade the two assets. Bitcoin ETFs have annual management fees.  There are no annual management fees charged to trade Bitcoin futures.

Capital efficiencies far favor trading Bitcoin futures over Bitcoin ETF’s.  Standard Reg T margins with Bitcoin ETF’s (similar to stocks) are 50% of the value of the ETF.  Futures margins for Bitcoin contracts are substantially more efficient with margin requirements commonly less than 5% of the notional value of the futures contract price.

One more important difference between Bitcoin futures and Bitcoin ETF’s concerns the tax ramifications involved in trading them.  With Bitcoin ETF’s all short-term profits pay ordinary income rates, however a profitable short-term trade with a Bitcoin futures contract will pay less in taxes per I.R.S. Section 1256 treatment of realized profit that benefits from a 60/40 blend of short- and long-term gains.

It should be noted that CME Group offers both a full-sized Bitcoin futures contract and a Micro Bitcoin futures contract, which is one-fiftieth (1/50) the size of its full-sized associate.

While some firms offer after-hours trading, Bitcoin ETFs cannot be traded 24hours-a-day.  On the other hand, Bitcoin futures trading hours are almost twenty-four hours a day, six days a week.

In conclusion, Bitcoin futures offer some compelling advantages to large and small investors alike over Bitcoin ETF’s. in many categories in a head-to-head comparison, Bitcoin futures hold the lead.

DisclaimerTrading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors.  Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

ritika sharma