It’s been a big week for Bitcoin and not just because the cryptocurrency reached record highs. The first Bitcoin futures ETF debuted on the New York Stock Exchange on Tuesday. It’s officially called the ProShares Bitcoin Strategy ETF with a ticker symbol of BITO.
So what does this mean exactly?
Probably the most important thing to know is that if you buy a share of this ETF, you won’t actually own any Bitcoin.
Instead, the ETF is made up of what’s called Bitcoin futures contracts, which is an advanced form of investing. If this sounds like gibberish, don’t despair. A futures contract is basically a way to bet on the future price of Bitcoin. When someone buys a “Bitcoin futures contract”, they are betting that the price of Bitcoin will be higher at a set date in the future. If they’re right, they make money. If they’re wrong, they lose money.
For example, let’s say Jane buys a Bitcoin futures contract that is set to expire on January 11, 2022. She is betting that the price of Bitcoin will be higher on January 11 than it will be today. If she’s right, then she will likely receive a cash settlement. (It’s rare to receive actual Bitcoin from a futures contract; most platforms just pay out cash.)
So should you invest in the Bitcoin Strategy ETF? We can’t tell you yes or no, but like any highly volatile asset, we wouldn’t recommend putting more than 5% of your assets towards it. You can achieve your financial goals without investing in it at all, so no need to have FOMO about this ETF. But if you have an appetite for a lot more risk than a typical stock ETF, then you could consider ProShares Bitcoin Strategy ETF. Like any ETF, it does have an expense ratio. In this case, it’s .95%.
If you do plan to invest in this ETF, you would buy it in the same way you’d buy any ETF on a self-directed brokerage platform, like Fidelity. You can find a list of our B.F.F.-approved self-directed trading platforms here.
Here’s What You Need to Know About the Bitcoin Futures ETF is written by Victoria Sechrist, Chief Economist at The Financial Gym for financialgym.com