Much has been written by industry watchers who are wary about the newly-launched Bitcoin Futures ETF.
ETFs Are a Bad Way to Bet on Bitcoin, Oct 26, 2021, Wall Street Journal
Bitcoin ETFs should not exist, Oct 20, 2021, Financial Times
The Problem With a Bitcoin Futures ETF, Oct 12, 2021, ETF Trends
The US SEC allowed the ProShares Bitcoin Strategy ETF launch to go ahead ostensibly because it holds bitcoin futures contracts traded on the regulated Chicago Mercantile Exchange.
That is, the underlying of this ETF is Bitcoin Futures, not Bitcoin itself.
The crux of the concern is that the instrument is “a Bitcoin derivations ETF which seeks to capture returns from the cryptocurrency using futures contracts. It draws its exposure to changes in Bitcoin’s price from short-term bitcoin futures contracts, meaning that it has to regularly sell expiring contracts and buy new ones.”
If this sounds convoluted and begs the question, “Why not just buy Bitcoin?”, that is a right question; and similar concerns are articulated by industry watchers.
At a technical level, Bitcoin Futures are in contango which is mentioned in the ETF Trends article. Read more about the contango effect on trading here and here.
Some of AQM’s sub-trading models use the Contango Trading strategy – a time-tested approach. (i.e. We did not ‘invent’ this strategy; we trade it using our proprietary signals because it complements our wider basket of strategies.)
For instance, VXX suffers from negative roll yield when the CBOE VIX futures curve is in contango. The VXX fund must “roll” its near-term futures contracts to further-term contracts as their expiration date nears. By purchasing further-dated contracts at higher price and selling near dated contracts at lower price, VXX suffers from value decay over time – which AQM trades/shorts to capture gains.
AQM uses the same Contango Trading principle to trade/short SQQQ the 3x leveraged inverse ETF that tracks the Nasdaq 100. (TQQQ is the 3x leveraged ETF and SQQQ is the 3x leveraged inverse ETF.)
As such, the Alphalytics Investment Team is monitoring the status of Direxion’s filing for its short Bitcoin Futures ETF. Once available, a sustainable, market-beating strategy could be built using the Contango Trading approach.
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Email hello @ alphalyticscm dot com for more about our investment strategies: (i) High performance targeting 25% CAGR and (ii) All Weather targeting better performance than equities with similar stability as bonds.
