VanEck Bounces Back After SEC Denial With Low-Cost Bitcoin Futures ETF

VanEck rebounded nicely after the Securities and Exchange Commission (SEC) punched the ETF sponsor in the nose last week by denying the proposal for VanEck’s physically-backed Bitcoin exchange traded fund.

After years of applying to the SEC to launch a Bitcoin ETF that would track the coin’s spot price, this week, VanEck joined the elite group allowed to track Bitcoin futures by launching the least expensive Bitcoin-futures ETF.

The VanEck Bitcoin Strategy ETF (XBTF) listed Tuesday on the Chicago Board Options Exchange (CBOE). The actively-managed fund seeks capital appreciation by investing in cash-settled front-month Bitcoin futures and entered a cryptocurrency market in a serious correction.

Since Nov. 10, when Bitcoin hit an all-time high of $68,789.63, the flagship cryptocurrency has tumbled 16% to $58,044.21. XBTF began trading Tuesday at $63.91. It closed Friday at $58.08, a 9% drop in a week.

“While a ‘physically-backed’ Bitcoin ETF remains a key goal, we are very pleased to be providing investors with this important tool as they build their digital asset portfolios,” said Kyle DaCruz, director of VanEck’s Digital Assets Product in a written statement.

The SEC’s wariness of ETFs holding Bitcoin can be seen in it’s denying approval to every application for a spot ETF. In last Friday’s ruling, it said it doesn’t believe that the spot Bitcoin ETF could “prevent fraudulent and manipulative acts and practices and protect investors and the public interest.”

The SEC also said the CBOE doesn’t have surveillance-sharing agreement to detect fraud and market manipulation related to the underlying asset. 

Futures, meanwhile, don’t track the spot price of an asset. A futures contract is a binding agreement to buy or sell a specific commodity, or security, at a specific price on a specific date.

Holding the front-month contract means it expires within a month, and is usually the most heavily traded and most liquid contract for that asset.

The contract must be rolled over each month to avoid taking delivery of the asset. This incurs trading costs and can cost more to buy if the price of the front-month contract is higher than the previous month. A good example of this is the United States Oil Fund (USO). Last year, when the price of oil fell the ETF went crazy.

VanEck grabs the title of low-cost leader among Bitcoin futures ETFs with an expense ratio of 0.65%. This is 30 basis points less than the first U.S. ETF to provide investors with exposure to Bitcoin futures. (100 basis points equal one percentage point.)

Launched Oct. 18, the ProShares Bitcoin Strategy ETF (BITO) charges an expense ratio of 0.95%. In just one month BITO has gathered $1.4 billion in total assets, according to Morningstar.

The Valkyrie Bitcoin Strategy ETF (BTF) is the other Bitcoin-futures ETF. It launched three days after BITO, also charges 0.95%, and has total assets of $57.2 million, said Morningstar.

The Bitcoin Strategy ProFund Investor (BTCFX) is a mutual fund that holds Bitcoin futures and charges an expense ratio of 1.15%. It’s up 41% since its late-July inception, but only has $29.5 million in total assets, according to Morningstar.

XBTF will invest primarily in Bitcoin futures listed and traded on the Chicago Mercantile Exchange (CME) Bitcoin futures have seen tremendous growth over the past three plus years. Average daily open interest in the CME’s Bitcoin futures has increased from $77 million in the first quarter of 2018 to approximately $1.5 billion at the end of the third quarter, according to CME Group.