I ask this as everyone is very excited about a futures backed ETF. But due to the roll cost is not going to track BTC price - but is going to track its price less 12% (+fees) per year!
You can see this from CME quotes:
https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.quotes.html#Looking at right now:
Oct 21: 60285
Nov21: 61035
So if you are a futures back ETF what you do is you buy the nearby future - so in this case the Oct21. Then over a period of about a week at the end of the month you gradually sell your Oct21 futures and buy the Nov21 futures. But here you see the problem - you are selling low and buying high - you just lost $750 vs your benchmark of BTC price - over 1%. And you have to do this every month!
Obviously you could instead buy the Dec22 future so you do not have to roll for 14 months. But that has zero liquidity (open interest is 1!), and was $3510 more that the Oct 21 future at the last close - but due to lack of liquidity would have to pay a lot more for it if bought in volume. So this would probably be even worse.
So WHY is the roll so expensive when you could do a risk free arbitrage I hear you ask!Problem is the arbitrage is very capital intensive. Take now arb would be:
Buy 5BTC @ 60k = $300k
Sell 1 Future @ $60,285 (you just made a $1,425 paper profit by the end of the month!).
But to buy the future you need to lodge $101,842 of margin at CME (initial might be 10% more than this):
https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.margins.htmlAnd you need cash at hand - as you are short and if the futures price increases you need to lodge more margin fast or the CME will close your position.
So this arb you need $450k (50k for some liquidity to cover margin calls - I assume if you need more could close out position) in CASH.
And you are making $750 * 5 * 12 = 45k a year. So a 10% return - but needs to be carefully managed to be sure if BTC price spike CME does not close you out - exposing you to the crash just after the spike - as you are now naked long BTC - and this could easily wipe out years of profits.
Now you might be able to borrow some money from someone and lodge the 5 BTC as collateral which would reduce your capital need and increase return - but not sure who would take on this loan!