Everything you wanted to know about a future Based ETF and were afraid to ask!

[fillippone]

As announced, BITO is going to launch a “short” version of his future fun “BITO”.



This is useful for them as it will somewhat ease the roll procedures. Basically they are buying futures with BITO and selling those with this new vehicle. Highly efficient!

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[fillippone]

Eric Balchunas published an interesting study on the GBTC, and incidentally analysed few aspects of BITO.
 
I am quoting here the relevant parts, but following the link you can read the whole post:

4. Futures ETFs Log Minimal Roll Costs
Though we were worried about Bitcoin futures ETFs' roll costs, they've been muted, with the ETF trailing spot by 2.16% since their October 2021 launch, which includes fees. There are two key reasons, we believe. First, Bitcoin entered a bear market within a month of BITO's introduction and the futures curve hasn't had significant contango. Second, the CME Bitcoin futures market matured significantly as institutions entered and made it more efficient. Institutions likely arbitraged away much of the profitable carry trade by hedging futures positions with spot positions.
Though we expect the futures market to act relatively efficiently, a sharp bull market alongside steep contango could spur significant underperformance for these products when compared with spot Bitcoin exposure. (08/23/22)





<…>

8. Volume Dominance Has Evaporated in 2022
GBTC dominated Bitcoin fund trading globally in 2021, with more than $370 million in average daily notional trading, despite its over-the-counter status. But overall volume is down in 2022 and so is GBTC's ranking. ProShares' BITO has taken the top spot at $170 million a day, followed by GBTC's $138 million. BTCetc's BTCE in Germany is the most traded international fund at $20 million and Purpose's BTCC leads in Canada. Spot Bitcoin ETPs are available in Brazil, Canada, Switzerland,Sweden, Germany, France and Australia.

GBTC and BITO's combined volume indicates to us that a US-listed spot Bitcoin ETF would likely dominate global cryptocurrency-fund trading. The SEC has repeatedly rejected ETF proposals, citing concerns about market oversight, but we believe 2023 may be the year for a US spot Bitcoin ETF launch. (07/11/22)



<…>

12. Competing With Growing Stable of Bitcoin Funds The SEC's repeated rejection of spot Bitcoin ETF proposals helped GBTC peak at $44 billion in assets despite trading over the counter and charging 2% annually. GBTC launched in September 2013 as a private trust and has benefited from that first-mover advantage, but US Bitcoin futures ETFs that
launched in 2021 are chipping away at its lead. GBTC still dominates in assets globally, partly because it can't offer redemptions. Its fee is substantially higher than the average ETP's, especially when compared with new launches, such as one in France that charges no fee and makes money by lending Bitcoin.
GBTC's inefficient structure underpins its poor performance vs. peers. (07/22/22)

[fillippone]

We have a first in BITO today:

*ProShares Bitcoin Strategy ETF (BITO) Paused due to volatility
(Dow Jones) -- (END) Dow Jones Newswires

It never happened bito was suspended from trading since its launch, as far as I could check, not even in the LUNA debacle.

[fillippone]

An interesting news.

You know there is the short version of BITO:
BITI puts on a short position in futures to gain when Bitcoin falls.




The index is rebalanced so the the position equals, in absolute value,  the daily performance of Bitcoin. If the bitcoin surges 1% BITI loses 1%, while if bitcoin goes down 1.5%, BITI goes up 1.5%.

This is true for a daily performance, so adding daily performances means BITI can diverge from the serie, as we get less and less convexity in the payoff.

But the true reasons is in the cost of rolling the position in the futures. The con tango has been very low for a long period, and we even went into backwardation, so the cost for BITO were very low. In the opposite, the cost for BITI were very high.

I will discuss this in a separate post in the futures thread.

[franky1]

in short
spot ETF
company prebuys a large amoutn of coin and locks it into a trust fund
people then buy shares of the trust fund that related to the collateral value(bitcoins) held within


futures
gamblers hand over money saying they contract that the price will go down
gamblers hand over money saying they contract that the price will go up

fiat goes into a fund

the market rate is the index, which is the average of these 2 gambles
loser loses by the X% difference of the index compared to their position. the winner get x % compared to the position

EG

if price is $17k
(A) bets it goes up,, puts in $500
(B) bets it goes down.. puts in $500
if it goes down by 2% of $17k.
(A) loses 2% of his $500 ($490)
(B) gets 2% of $10k($510)

in short
spot ETF is investing.. futures is gambling
leveraging
say you want to gamble 10k but only have $500
you take a loan out with the market for the extra $9500

issues get bad if the market was to take a 5% or more turn against you
EG 6% bad bet result which is not a 6% on your $500($30loss)
its 6% on the $10k bet

where your $500 is gone and you owe the market another $100
plus you still owe interest and penalties on the $9500 loan.

the person that won a good 6% bet by doing a 20x leverage on their $500
gets $600 meaning $1.1k total now and just has to pay off the interest on the loan

[fillippone]

in short
spot ETF
company prebuys a large amoutn of coin and locks it into a trust fund
people then buy shares of the trust fund that related to the collateral value(bitcoins) held within


futures
gamblers hand over money saying they contract that the price will go down
gamblers hand over money saying they contract that the price will go up

fiat goes into a fund

the market rate is the index, which is the average of these 2 gambles
loser loses by the X% difference of the index compared to their position. the winner get x % compared to the position

EG

if price is $17k
(A) bets it goes up,, puts in $500
(B) bets it goes down.. puts in $500
if it goes down by 2% of $17k.
(A) loses 2% of his $500 ($490)
(B) gets 2% of $10k($510)

in short
spot ETF is investing.. futures is gambling
leveraging
say you want to gamble 10k but only have $500
you take a loan out with the market for the extra $9500

issues get bad if the market was to take a 5% or more turn against you
EG 6% bad bet result which is not a 6% on your $500($30loss)
its 6% on the $10k bet

where your $500 is gone and you owe the market another $100
plus you still owe interest and penalties on the $9500 loan.

the person that won a good 6% bet by doing a 20x leverage on their $500
gets $600 meaning $1.1k total now and just has to pay off the interest on the loan

Yes, future instruments have leverage.
This doesn't mean they are used for "gambling".
You can take advantage of leverage, but you can also use futures as perfectly legitimate hedging instruments.

i bet you stumbled in this thread before:

Everything you wanted to know about BTC futures but were afraid to ask!

[fillippone]

The BITO fund had massive inflows lately and now has just set the record for issued shares:



They have 56,180 issued shares. The AUM is still lagging because of the depressed market price, but it's going to raise quicker than in the past given the higher number of shares.

[fillippone]

BITO had an extremely good day a few sessions ago following appreciation in the underlying Bitcoin price as the SEC debacle unfolded.

Not only did the price jump 7.3%, but it also recorded its biggest volume since launch (excluding launch day, of course).



More than 800 million BITO shares traded is a record to date.

Of course, the interesting thing is that BITO would be an absolute loser in case of a GBTC conversion, as its future strategy is inferior to the simple buy-and-hold a-spot ETF would imply.
Probably, things must get better for them, before getting worse.

[fillippone]

I don't know if this post is off-topic or not, but the first future-based ETH ETF just made their debut on the market.
Well, the outcome was not outstanding, as it was for BITO.



Bito traded al least 1 billion on his debut day, while here we are dealing with requests in the region of tiny amounts.

Here , VanEck, details what they are doing with the fees:




Detail:

[philipma1957]

I don't know if this post is off-topic or not, but the first future-based ETH ETF just made their debut on the market.
Well, the outcome was not outstanding, as it was for BITO.



Bito traded al least 1 billion on his debut day, while here we are dealing with requests in the region of tiny amounts.

Here , VanEck, details what they are doing with the fees:




Detail:

this is on topic. Any rational person understands that a POS coin is not really anything more than an un regulated un backed bond while any large asic back POW coin is back by power network infrastructure and asics.

Nice find I only wish people would understand POW is energy creating wealth

and POS is piece of shit.

[JayJuanGee]

I don't know if this post is off-topic or not, but the first future-based ETH ETF just made their debut on the market.
Well, the outcome was not outstanding, as it was for BITO.

this is on topic. Any rational person understands that a POS coin is not really anything more than an un regulated un backed bond while any large asic back POW coin is back by power network infrastructure and asics.

Nice find I only wish people would understand POW is energy creating wealth

and POS is piece of shit.

The market seems to be agreeing with you, somewhat, Philip... and surely it seems to be getting possible that the ethereum price (in terms of BTC) is going to seen get to a 2 year low point.. not sure if  it will happen. .but maybe this fairly dumb future's product will help to bring Eth further in the direction of its lacking in value as compared with king daddy.

[philipma1957]

I don't know if this post is off-topic or not, but the first future-based ETH ETF just made their debut on the market.
Well, the outcome was not outstanding, as it was for BITO.

this is on topic. Any rational person understands that a POS coin is not really anything more than an un regulated un backed bond while any large asic back POW coin is back by power network infrastructure and asics.

Nice find I only wish people would understand POW is energy creating wealth

and POS is piece of shit.

The market seems to be agreeing with you, somewhat, Philip... and surely it seems to be getting possible that the ethereum price (in terms of BTC) is going to seen get to a 2 year low point.. not sure if  it will happen. .but maybe this fairly dumb future's product will help to bring Eth further in the direction of its lacking in value as compared with king daddy.

I am hoping for 1 btc to go 32x the value of 1 eth by years end.

numbers are 27.7/1.645 = 16.8x

[JayJuanGee]

I don't know if this post is off-topic or not, but the first future-based ETH ETF just made their debut on the market.
Well, the outcome was not outstanding, as it was for BITO.

this is on topic. Any rational person understands that a POS coin is not really anything more than an un regulated un backed bond while any large asic back POW coin is back by power network infrastructure and asics.

Nice find I only wish people would understand POW is energy creating wealth

and POS is piece of shit.

The market seems to be agreeing with you, somewhat, Philip... and surely it seems to be getting possible that the ethereum price (in terms of BTC) is going to seen get to a 2 year low point.. not sure if  it will happen. .but maybe this fairly dumb future's product will help to bring Eth further in the direction of its lacking in value as compared with king daddy.

I am hoping for 1 btc to go 32x the value of 1 eth by years end.

numbers are 27.7/1.645 = 16.8x

I am not even sure what your above predictive numbers mean, Phil.  

Oh edit: Based on my maths and sciences capacities to divide 1/32, I think that 32x would be 0.03125 BTC per ETH... so yeah that might be even a bit more optimistic than me.. if you read my further response below.. and then consider my own nervousness to be attempting to predict too much in terms of getting my hopes up in regarding the crappiness of ETH should actually be reflected in its price respective to bitcoin, as it was in 2019-ish when ETH had gotten below 0.02 BTC for a decent amount of time, before ethereum ended up getting pumped relative to bitcoin at some point (maybe that would have been its mid-2021 pump)

And sure, I don't even have very much confidence that I am able to give much trust to various ETH prices.. based on questions about the overall outstanding ETH supply being not even close to transparent (in order to really be able to make meaningful rather than merely made up bullshit approximations), yet still in my earlier post I was largely going by this week's ETH/BTC rate going as low as 0.05915 BTC, but in the last two years, it had gotten down to 0.04989 BTC..

...so I was considering that maybe if the ETH/BTC rate continues to drop, then it will get down to that 2 year low of  0.04989 BTC or maybe even go lower than that.  

I don't really know what to expect, even though I have some appreciation of the ETH/BTC price direction that was being expressed this week.

[philipma1957]

Basically BTC up and ETH down is what I look for each and every day.

I don't deal in eth I avoid it like the plague.

[fillippone]

Basically BTC up and ETH down is what I look for each and every day.

I don't deal in eth I avoid it like the plague.

As long as Vitalik is selling ETH and Justin Sun is liquidated on ETH, the BTCETH cross has no hopes of recovery.
I do agree that ETH is a plague.
Shiftiest show.
AVOID.
I have been playing with it lately on some, ehm, experiment. Very fast and efficient, as I would expect from a centralised system after all.

[franky1]

in short
spot ETF
company prebuys a large amoutn of coin and locks it into a trust fund
people then buy shares of the trust fund that related to the collateral value(bitcoins) held within


futures
gamblers hand over money saying they contract that the price will go down
gamblers hand over money saying they contract that the price will go up

fiat goes into a fund

the market rate is the index, which is the average of these 2 gambles
loser loses by the X% difference of the index compared to their position. the winner get x % compared to the position

EG

if price is $17k
(A) bets it goes up,, puts in $500
(B) bets it goes down.. puts in $500
if it goes down by 2% of $17k.
(A) loses 2% of his $500 ($490)
(B) gets 2% of $10k($510)

in short
spot ETF is investing.. futures is gambling
leveraging
say you want to gamble 10k but only have $500
you take a loan out with the market for the extra $9500

issues get bad if the market was to take a 5% or more turn against you
EG 6% bad bet result which is not a 6% on your $500($30loss)
its 6% on the $10k bet

where your $500 is gone and you owe the market another $100
plus you still owe interest and penalties on the $9500 loan.

the person that won a good 6% bet by doing a 20x leverage on their $500
gets $600 meaning $1.1k total now and just has to pay off the interest on the loan

Yes, future instruments have leverage.
This doesn't mean they are used for "gambling".
You can take advantage of leverage, but you can also use futures as perfectly legitimate hedging instruments.

i bet you stumbled in this thread before:

Everything you wanted to know about BTC futures but were afraid to ask!

its not just the leverage used that is a gamble.. but also that you make a random bet on a random price unknown at the time to result in a win