First U.S. Bitcoin ETF Nears CME Futures-Buying Limit

The ProShares futures-based Bitcoin ETF (BITO) has nearly reached the maximum number of contracts permitted under Chicago Mercantile Exchange (CME) rules. Bloomberg reports.

In the first two days of trading, the fund purchased 1,900 October-dated futures. CME caps the number of near-term contracts at 2,000.

Due to heightened client demand, ProShares had to switch to November-dated futures, adding 1,400 contracts to the portfolio. Under CME rules, the aggregate number of such derivatives is capped at 5,000.

As of the third trading day, BITO stood at 1,679 October and 2,133 November contracts, with a total value of $1.2 billion.

Allocation of assets to longer-dated futures could further dampen ETF performance relative to Bitcoin. This would stem from the need to pay a rollover in contango conditions, the agency noted.

“The ETF must ‘copy’ the price of the first cryptocurrency at ever-higher prices as it moves further along the futures curve. This increases tracking error.”, — said Nate Geraci, president of The ETF Store.

The analyst suggested that ProShares’ experience could spur the SEC to accelerate approval of a spot ETF that invests directly in the leading cryptocurrency.

Morgan Stanley recommended that advisers refrain from buying bitcoin ETFs for clients.

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