SEC Chairman Gary Gensler said he prefers futures-based exchange-traded funds and justified himself by arguing that the Investment Company Act of 1940 provides important investor protections for ETFs that track futures contracts.
How do spot-backed Bitcoin ETFs work? They are used to acquire the cryptocurrency but the custody and management is of the fund administrators. When an ETF share is purchased, managers use the money to buy Bitcoin, which is then stored in a cold wallet. The ETF contemplates the collection of a commission for administrative handling. The shares are settled in fiat currency.
What is the difference between a spot-backed Bitcoin ETF and one on futures? Futures contracts are financial instruments by which two parties agree to buy and sell an asset of a specific amount at a predetermined price, and on a specific date in the future. A Bitcoin futures ETF is referenced to the price specified in a futures contract that was purchased by the ETF provider, therefore they do not follow the price of the cryptocurrency as closely. They have extra costs for the contracts.
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