• Filing resembles recent filings by Invesco, ProShares and VanEck as issuers seek easiest SEC approval path
  • Costs associated with bitcoin futures ETFs could constrain investor demand, Bloomberg Intelligence analysts argue

Galaxy Digital has jumped aboard the bandwagon of issuers hoping to bring to market a bitcoin futures ETF amid industry pessimism around the SEC approving a physical bitcoin ETF anytime soon. 

The proposed Galaxy Bitcoin Strategy ETF seeks to provide actively managed exposure to bitcoin futures contracts, according to a disclosure filed with the SEC on Tuesday. The document does not indicate a ticker or expense ratio for the planned offering. 

The fund may also invest in Canadian ETFs or other pooled investment vehicles, but will not invest directly in bitcoin, the preliminary prospectus states. Galaxy Digital Asset Management subadvises CI Global Asset Management’s bitcoin and Ethereum ETFs, which are currently listed on the Toronto Stock Exchange. 

A Galaxy spokesperson declined to comment further on the filing.

The proposal follows similar ones by Invesco and ProShares, as well as VanEck, which was the first to file for a bitcoin futures ETF in 2017 but later withdrew its application. Gabor Gurbacs, director of VanEck’s digital assets strategy, previously said that the futures markets have significantly matured in the last few years.

The plans come after SEC Chairman Gary Gensler said earlier this month that his agency would “look forward” to reviewing ETF filings that are limited to bitcoin futures contracts traded on the Chicago Mercantile Exchange. About a dozen proposed ETFs that would invest directly in crypto assets await greenlighting from the agency. 

Galaxy CEO Michael Novogratz said during the company’s second quarter earnings call on Monday that he was surprised by Gensler signaling a preference for futures-based ETFs.

“I think it’s a mistake, though every single person in the ETF game is going to try to figure out what the SEC will allow and have a product that fits that need,” he said. “…It doesn’t mean a futures ETF is a bad product — it’s just these are monthly futures so there’s a monthly futures roll every time. I don’t think it’s the best way to set this up.”

The downside

As more firms file for bitcoin futures ETFs in the wake of Gensler’s comments, industry watchers have expressed downsides to such products. 

Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart wrote in a research note on Tuesday that they believe the SEC should approve physically backed bitcoin ETFs to avoid futures-related costs.

An ETF that tracks futures must constantly buy and sell them to maintain exposure, the analysts explained, noting that bitcoin’s roll costs have averaged about 10 percentage points of return annually.

“The dilemma for ETF issuers when making bitcoin futures ETFs will be whether to use the front two months, which track closest to bitcoin’s spot price in the near term but cause long-term corrosion and cost,” Balchunas and Seyffart wrote. “Investing in the whole curve would limit roll costs, but the ETF would lose some sensitivity to short-term moves in spot Bitcoin.”

Lara Crigger, managing editor of ETF Trends, previously told Blockworks that other drawbacks to using futures include contango – a situation where the futures price of a commodity is higher than the spot price – as well as position limits, tax differences and changes in the risk-return profile.

In terms of demand, investors have shown they prefer physically backed commodity ETFs over ones that hold futures, Balchunas and Seyffart added. The SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU) have a combined $90 billion in assets, while the futures-backed Invesco DB Gold Fund (DGL) holds just $83 million.

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  • Ben Strack is a Denver-based reporter covering macro economics, financial services and digital asset management. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence, and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism.