Pantera Capital CEO Dan Morehead shared his bullish outlook on the prospects of a spot Bitcoin ETF in the US market. He argued that such a product would break the typical pattern of ‘Buy the rumor, sell the News’ that has plagued previous crypto-related launches.
Morehead explained that the current Bitcoin futures ETFs, such as ProShares and VanEck, are not ideal for investors who want to gain exposure to the actual price of Bitcoin. He said that these products suffer from a negative roll yield, which means that they lose value over time as they have to sell the expiring futures contracts and buy new ones at a higher price.
He also pointed out that the futures ETFs have a high expense ratio of 0.95%, which is much higher than the average 0.4% for equity ETFs. He estimated that this would cost investors about $1.5 billion per year in fees.
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According to ETFdb.com, the average expense ratio for futures ETFs is 0.95%, which is much higher than the average 0.4% for equity ETFs. This means that for every $1000 you invest in a futures ETF, you will pay $9.50 in fees every year, compared to $4 for an equity ETF. This might not seem like a big difference, but over time, it can eat into your returns significantly.
For example, if you invest $10,000 in a futures ETF with a 0.95% expense ratio and a 10% annual return, you will end up with $23,763 after 10 years, assuming no dividends or capital gains distributions. However, if you invest the same amount in an equity ETF with a 0.4% expense ratio and a 10% annual return, you will end up with $25,937 after 10 years, assuming no dividends or capital gains distributions. That’s a difference of $2,174, or 9% of your initial investment.
The reason why futures ETFs have such high expense ratios is because they are more complex and costly to manage than equity ETFs. Futures contracts have expiration dates, which means that the fund has to roll over its positions periodically to avoid delivery of the underlying assets. This involves buying and selling contracts at different prices, which can create tracking errors and tax implications.
Moreover, futures contracts are subject to margin requirements, which means that the fund has to maintain a certain amount of cash or collateral to cover its obligations. This reduces the amount of money that the fund can invest in the market, lowering its potential returns. In addition, futures ETFs may face regulatory hurdles or liquidity issues that can affect their performance and availability.
Therefore, before you invest in futures ETFs, you should weigh the pros and cons carefully and consider whether they are suitable for your risk tolerance and investment goals. Futures ETFs can offer diversification and exposure to niche sectors, but they also come with high fees and complexity that can erode your returns over time.
Morehead claimed that a spot Bitcoin ETF, which would track the price of Bitcoin directly by holding the underlying asset, would solve these problems and attract more demand from institutional and retail investors. He said that such a product would have a lower expense ratio, a positive roll yield, and a higher correlation with Bitcoin’s price movements.
He also predicted that a spot Bitcoin ETF would have a positive impact on the market sentiment and break the cycle of ‘Buy the rumor, sell the News’ that has characterized previous crypto-related launches, such as Coinbase’s IPO and El Salvador’s adoption of Bitcoin as legal tender. He said that these events were followed by sharp selloffs, as investors anticipated them and bought in advance.
He argued that a spot Bitcoin ETF would be different, as it would create a feedback loop of increasing demand and supply for Bitcoin. He said that as more investors buy the ETF, the fund would have to buy more Bitcoin to back it up, which would drive up the price of Bitcoin and attract more investors to the ETF.
He concluded that a spot Bitcoin ETF would be a game-changer for the crypto industry and that he expects it to happen soon. He said that he is optimistic about the SEC’s approval of such a product, as he believes that the regulator is becoming more open-minded and supportive of innovation in the crypto space.