Asset managers in US propose new Bitcoin ETFs to target cautious investors

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As a seasoned investor with a penchant for digital assets and a knack for managing risk, I find the recent developments in Bitcoin ETFs intriguing. The idea of derivatives-based Bitcoin ETFs designed to cushion against notorious price swings is an appealing proposition.

I, as an analyst, have observed a trend where asset managers are gravitating towards innovative Bitcoin ETFs that are derivative-based. These new financial instruments are being used as a strategic tool for more risk-averse investors to manage the infamous volatility in the cryptocurrency market.

Investment firms based in the U.S. are submitting proposals to regulatory bodies for the creation of Bitcoin (BTC) exchange-traded funds, which employ derivative contracts as a means to limit or ideally eliminate potential losses. This approach is aimed at drawing in conservative investors who are keen on investing in the crypto market but prefer lower risk options.

As per a Financial Times article published on December 2nd, the suggestions encompass various “buffer” and “ceiling management” tactics. These mechanisms help mitigate risks by shielding investors from substantial losses while also capping potential earnings.

According to the report, several investment firms like Calamos Investments, First Trust Portfolios, Innovator ETFs, and Grayscale Investments are waiting for approval from the U.S. Securities and Exchange Commission. Once approved, they intend to launch products that employ strategies such as buffered or managed floor, designed to limit potential losses up to 30%. Additionally, some of these firms also plan to introduce covered call ETFs or leveraged versions of their products.

Todd Rosenbluth, head of research at TMX VettaFi, explains that the increase in such funds might be due to a growing number of investors wanting to enter the market, particularly since Bitcoin has experienced a significant surge this year. He also notes that these downside protection ETFs will provide a cautious approach for more individuals to incorporate Bitcoin into their investment portfolios.

If given approval by the SEC, the new products might debut as soon as February. However, potential hurdles for the funds may arise from position limits on options contracts, especially if demand surpasses the existing capacity, according to the report.

The recent filings indicate a major transition in the ETF market since Ethereum (ETH) spot ETFs registered an unprecedented single-day inflow of $332.92 million, marking the first time this surpassed Bitcoin ETFs. In addition, Ethereum experienced a 3% increase during that period, whereas Bitcoin’s price remained relatively stable.

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2024-12-02 10:54