JPMorgan, the largest US bank, stated that while the ProShares Bitcoin futures ETF traded $1 billion in its first days, it would be more beneficial for its investors to acquire bitcoin directly.
The bank explains that bitcoin futures ETFs have a significant disadvantage that might lead to a decline in profitability.
JPMorgan told to a business insider:
“Contango in the BTC futures curve can impose a drag on performance for these funds due to the futures carry cost/roll yield. This carry drag can be several times the products’ management fees, and could become even larger if these products gather substantial assets, due to their market impact.”
This is because the ETF does not hold bitcoins as an underlying asset, according to JPMorgan. Instead, the ETF owns bitcoin derivatives, which use futures contracts to try to replicate the profitability profile of the cryptocurrency. To actively manage a portfolio of Bitcoin futures contracts, which are strongly tied to cryptocurrency price changes, the ETF must roll over Bitcoin futures contracts to the next month right before they expire. This method incurs additional trading fees and is less efficient than simply purchasing and storing bitcoin.
According to JPMorgan, the average annual rollover cost of futures contracts since mid-2019 has been over 9%, nearly ten times the annual expenditure ratio of the ProShares Bitcoin Strategy ETF of 0.95 percent. Over time, this metric may disappoint investors because it will lag significantly behind returns from direct bitcoin investors.
According to the bank, ETFs with time-stretched volatility are a good example of how long-term returns can be reduced if the costs of trading futures rise. Because the greater the number of long-term investors, the more expensive it gets to hold them due to the market impact of the ETFs themselves.
Not all investors are interested in investing in Bitcoin Futures ETF. Catherine Wood stated that the company will investigate Bitcoin futures ETFs until it sees a move with good two-way liquidity and less contango.
Simultaneously, Tom Lee, co-founder of Fundstrat Global Advisors, believes that demand for Bitcoin ETFs will remain high for a long time and that the fund will attract up to $50 billion.