ProShares Bitcoin Strategy ETF (BITO) fast approaching the max contracts it can hold in the first month

By: Charles Thuo
Charles Thuo
Charles loves traveling, reading, and sharing his knowledge about blockchain technology. read more.
on Oct 22, 2021
  • The CME limits the number of contracts BITO can hold in its first month to 2,000.
  • The ETF already holds 1,900 futures contracts meaning only 100 contracts are remaining.
  • CME also imposed an absolute limit of 5,000 futures contracts to be held at a time.

It is only three days since ProShares Bitcoin Strategy ETF (BITO) was launched and it is already overwhelmed by contracts.

Out of the 2,000 futures contracts that the Chicago Mercantile Exchange (CME) permits it to hold, only 100 contracts are left for grabs since 1,900 futures contracts have already been opened.

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At the current rate, ProShares Bitcoin ETF is proving to be more popular than anticipated.

Over popularity of BITO – the first US Bitcoin Futures ETF

Within its first hour of launch, BITO traded $500 million a figure that rose to about $1 billion by the end of the first day.

It became the second most successful ETF in the history of NYSE after BlackRock Carbon Fund that actually traded higher because of pre-seed investments.

Because of the high number of futures contracts, Proshares already holds 1,400 futures contracts for November to avoid scrambling for the contracts when it’s too late and probably breaching its limit.

Also, it is only nine days left to November and BITO is likely to hit the absolute limit of 5,000 futures shares that CME has imposed on it within the first few days of November.

It is only three days since its launch and it already holds more than half the obsolete limit.

Looming risk

While the majority agree that SEC’s approval of Bitcoin Futures ETF was a crucial regulatory development within the cryptocurrency space, some consider futures ETFs to be a suboptimal solution for investors compared to the spot-based ETFs.

By comparison, futures ETFs come with price tracking errors and additional administration fees that erode the investors’ profits while spot ETFs are not affected by these problems.

But the SEC chairman Gary Gensler indicated that he is more open to the futures-based ETFs since they are regulated by the Chicago Mercantile Exchange (CME0 thus providing the necessary protection to investors.

Another risk especially with BITO is that if it continues to spread its futures contracts holdings over longer-dated futures, it will risk distancing futures prices from the actual price of Bitcoin.

The president of The ETF Store advisory firm echoed this thought by saying:

“The end result is the ETF will start taking on potentially significant tracking error versus the spot price of Bitcoin. The ETF is forced to obtain Bitcoin price exposure at higher and higher prices as it goes further out on the futures curve.”

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