"Considering a fund or ETF that invests in bitcoin futures? It’s important to understand that an investment in a Bitcoin futures fund or ETF is not the same thing as buying Bitcoin directly.
Futures contracts are financial instruments whereby two parties agree to buy and sell an asset of a specific quantity at a predetermined price, and at a specified date in the future, the expiry date.
Prior to expiry, a fund or ETF will typically close an open position and use the proceeds to establish a new position in a futures contract with a later date. This is known as “rolling the contract” and it’s a source of potential positive or negative return in addition to the change in spot price of the underlying asset over the term of the contract.
When the price of longer-dated futures contracts are lower than the current spot price the process of rolling into a new contract means the fund is able to buy more contracts with the same amount of money and therefore it can be a positive source of return. This is referred to as being in a state of backwardation. In contrast, if the price of a longer-dated futures contract is higher than the current spot price then the process of rolling a contract can detract from returns and this is referred to as being in a state contango.
In its short history, Bitcoin futures have generally been in a state of contango and given the high demand and price volatility of bitcoin itself the differences between futures prices and spot prices can be wide ranging.
So, while the return from Bitcoin futures may highly correlate to spot Bitcoin, the dynamics of rolling futures contracts may cause your actual return to differ significantly from spot Bitcoin."
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