The surge in Bitcoin prices highlights the importance of spot ETFs as it draws attention to the futures spread.
Futures contracts have a specified expiration date, requiring traders to roll over their positions before settlement. When the spread between the front-month and next-month contracts widens, rollovers result in traders selling the expiring contract at a low price and entering the new contract at a high price. This unintended strategy of selling low and buying high ends up causing financial loss.
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The recent expansion of contango in the bitcoin futures market comes as no surprise. The CME Bitcoin Futures Market has historically exhibited significant contango during bullish market periods, especially when anticipation builds around future events like the approval of a spot bitcoin ETF. This level of contango will undoubtedly affect investors in futures-based ETFs, as highlighted by Matthew Hougan, the Chief Investment Officer at Bitwise Asset Management, a crypto index fund and ETF provider.
Hougan emphasized the superiority of a spot bitcoin ETF for most investors over a futures-based ETF. Investors simply want to securely own bitcoin without complications or uncertainties. A spot-based ETF would fulfill that objective.
Futures-based ETFs based in the United States invest in bitcoin futures listed on the CME exchange.
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