Several asset management firms in the US, including Grayscale, have recently applied with regulators to introduce a new category of Bitcoin exchange-traded funds (ETFs) designed for risk-averse investors. These ETFs are meant to provide Bitcoin exposure while mitigating potential losses using derivatives-based strategies.
Risk-Averse Bitcoin ETF for Volatility
This trend of applications follows the recent listing of options contracts linked to spot Bitcoin ETFs launched earlier this year. With these tools available, ETF providers can now structure products that offer buffered protection against downside risks or generate regular income through covered call strategies. Such approaches can alleviate volatility which can help make crypto investments more appealing to cautious investors.
According to reports, Todd Rosenbluth, head of research at TMX VettaFi, noted that Bitcoin’s rapid rise this year has left many investors regretful for not participating due to its inherent volatility. He suggested that these new ETFs could attract individuals seeking a more controlled entry into the crypto market. By incorporating downside protection, the offerings could broaden Bitcoin’s appeal, particularly among financial advisors aiming to minimize client risk.
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Several other proposals are also under review. First Trust Portfolios has proposed ETFs that cap potential losses, including one with a 15% loss floor and another buffering against the first 30% of any decline. Innovator ETFs has filed for products offering a 10% buffer over three months and a managed floor ETF with a 20% downside cap. Furthermore, Grayscale plans to launch a covered call Bitcoin ETF, which would make premium income but limit potential price gains.
Despite the promise, challenges persist. Regulatory position limits on Bitcoin options could restrict ETF capacities, potentially complicating their growth. However, firms are optimistic that expanding options markets and regulatory adjustments will address these constraints.
Opinions on these products vary. Kenneth Lamont of Morningstar expressed skepticism about their necessity, suggesting that risk-averse investors might be better off with smaller allocations to Bitcoin. On the other hand, Rosenbluth remains optimistic, believing these ETFs could attract investors who previously avoided Bitcoin due to volatility concerns. If approved, these ETFs could be launched as as early as February, offering a new avenue for measured crypto investment, especially with the falling Bitcoin’s market share.
Also Read: Bitcoin Rebounds at $97K Despite Falling BTC Market Share
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