Bitcoin ETFs are exchange-traded funds that track the price of bitcoin and trade on traditional stock exchanges. They allow investors to gain exposure to bitcoin without having to buy, store, or manage the cryptocurrency directly. There are two main types of bitcoin ETFs: spot and futures.
A spot bitcoin exchange-traded fund (ETF) is a type of investment product that tracks the price of bitcoin on the spot market, where bitcoins are bought and sold for immediate delivery. Unlike futures-based bitcoin ETFs, which use contracts that expire at a certain date and price, spot bitcoin ETFs aim to reflect the current market value of bitcoin as closely as possible.
Spot bitcoin ETFs are designed to provide investors with exposure to bitcoin without the need to buy, store, or secure the cryptocurrency themselves. By buying shares of a spot bitcoin ETF, investors can benefit from the price movements of bitcoin without having to deal with the technical and operational challenges of owning and transferring bitcoins. Spot bitcoin ETFs also offer advantages such as liquidity, transparency, and regulatory oversight.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
However, spot bitcoin ETFs also face some challenges and risks. One of the main challenges is the lack of a uniform and reliable source of bitcoin prices across different platforms and jurisdictions. This can lead to discrepancies and arbitrage opportunities between the spot market and the ETF market, which can affect the accuracy and efficiency of the ETF.
Another challenge is the security and custody of the underlying bitcoins that back the ETF. The ETF provider has to ensure that the bitcoins are stored safely and securely, and that they can be redeemed by the shareholders if needed. Additionally, spot bitcoin ETFs are subject to regulatory uncertainty and volatility in the cryptocurrency market, which can affect their performance and availability.
Spot bitcoin ETFs are a novel and innovative way to invest in bitcoin without having to own or manage the cryptocurrency directly. They offer benefits such as convenience, diversification, and compliance, but they also entail challenges such as price discrepancies, security issues, and regulatory hurdles. Investors who are interested in spot bitcoin ETFs should do their own research and due diligence before investing in this emerging asset class.
Futures bitcoin exchange-traded fund (ETF) is a type of investment that tracks the price of bitcoin futures contracts, which are agreements to buy or sell bitcoin at a predetermined price and date in the future. A futures bitcoin ETF does not hold actual bitcoin, but rather buys and sells bitcoin futures contracts on a regulated exchange.
A futures bitcoin ETF can offer investors exposure to the price movements of bitcoin without the need to buy, store, or secure actual bitcoin. This can reduce some of the risks and challenges associated with investing in bitcoin directly, such as hacking, theft, or loss of private keys. A futures bitcoin ETF can also provide more liquidity and transparency than some other types of bitcoin products, such as trusts or funds that trade over the counter.
However, a futures bitcoin ETF also has some drawbacks and limitations. For one thing, a futures bitcoin ETF may not track the spot price of bitcoin accurately, due to factors such as contango and backwardation, which are situations where the futures price differs from the spot price. Contango occurs when the futures price is higher than the spot price, which means that the ETF has to pay more to roll over its contracts and may incur a negative roll yield. Backwardation occurs when the futures price is lower than the spot price, which means that the ETF can profit from rolling over its contracts and may earn a positive roll yield. These situations can affect the performance and returns of the ETF compared to the underlying asset.
Another drawback of a futures bitcoin ETF is that it may incur higher fees and expenses than a physical bitcoin ETF, which would hold actual bitcoin. A futures bitcoin ETF has to pay for the costs of trading and rolling over its contracts, as well as management fees and other expenses. These fees can eat into the returns of the ETF and make it less efficient than a physical bitcoin ETF.
A futures bitcoin ETF is also subject to regulatory and legal uncertainties, as the rules and regulations governing bitcoin and its derivatives are still evolving and may change in the future. A futures bitcoin ETF may face regulatory hurdles or challenges from authorities or competitors, which could affect its operations and viability. For example, in October 2021, the U.S. Securities and Exchange Commission (SEC) approved the first futures bitcoin ETF in the U.S., but also issued a warning to investors about the risks and volatility of investing in such products.
Futures bitcoin ETF is a type of investment that offers investors exposure to the price movements of bitcoin through futures contracts, without holding actual bitcoin. A futures bitcoin ETF has some advantages over investing in bitcoin directly, such as reducing some of the risks and challenges associated with buying, storing, or securing bitcoin. However, a futures bitcoin ETF also has some disadvantages and limitations, such as potential tracking errors, higher fees and expenses, and regulatory and legal uncertainties. Investors should weigh the pros and cons of investing in a futures bitcoin ETF before making a decision.
Futures bitcoin ETFs do not hold bitcoins, but rather trade bitcoin futures contracts on regulated commodity exchanges. They reflect the future price of bitcoin based on market expectations and demand. Futures bitcoin ETFs have the advantage of being more accessible, flexible, and compliant than spot bitcoin ETFs. However, they also suffer from more volatility, tracking error, and fees than spot bitcoin ETFs.
Both types of bitcoin ETFs offer investors a convenient way to participate in the growing bitcoin market, but they also have different trade-offs and risks. Investors should carefully weigh the pros and cons of each type of bitcoin ETF before making a decision.
Fantom Considers Adding Optimistic Rollups to Connect with Ethereum
Meanwhile, Fantom, a fast and scalable blockchain platform, is exploring the possibility of implementing optimistic rollups to enable seamless interoperability with Ethereum. Optimistic rollups are a layer-2 scaling solution that allow smart contracts to run on a sidechain with lower fees and higher throughput, while still benefiting from the security and decentralization of the main Ethereum network.
Optimistic rollups are one of the most promising technologies for scaling Ethereum, as they can support complex applications such as decentralized exchanges, gaming, and DeFi. However, they also pose some challenges, such as the need for fraud proofs, data availability, and cross-chain communication. Fantom aims to overcome these challenges by leveraging its own unique features, such as its asynchronous Byzantine fault tolerant (aBFT) consensus mechanism, its fast finality, and its compatibility with the Ethereum Virtual Machine (EVM).
Cronje confirmed that if Fantom were to adopt Optimistic rollups, providing a full transaction history on Ethereum, it would need to pay transaction fees to write these snapshots to the Ethereum network. Michael Kong, CEO of the Fantom Foundation, added that deploying Layer 2 technology in this manner would enable the Fantom network to access more liquidity from the Ethereum ecosystem. Andre Cronje prefers to consider the Layer 2 network as a side chain, viewing the Optimistic rollups technology as a bridge between them.
By adding optimistic rollups to its platform, Fantom hopes to attract more developers and users who want to build and use applications that require both speed and security. Fantom also believes that this will enhance its value proposition as a bridge between different blockchains, especially in the context of the upcoming Ethereum 2.0 upgrade, which will introduce sharding and proof-of-stake.
Fantom’s team is currently conducting research and development on optimistic rollups and plans to launch a TestNet in the near future. The team is also collaborating with other projects in the blockchain space, such as Polygon and Arbitrum, to learn from their experiences and best practices. Fantom’s vision is to create a scalable and interoperable ecosystem that can support the growth and innovation of the blockchain industry.
Interestingly, over 100 million wallet addresses now hold a non-zero amount of Ethereum, according to data analytics firm Glassnode, this development underscores the growing interest and adoption of Ethereum in the digital currency market. The increase in the number of addresses may also point to the potential expansion of decentralized finance DEFI applications and the rise of non-fungible tokens, both of which have Ethereum as their bedrock.