With the pace that the futures contracts of the recently launched Bitcoin Strategy ETFof ProShares, BITO, are moving, it is fast approaching the limit allowed by the Chicago Mercantile Exchange.
Out of the 2,000 contracts that BITO has for October, it had already collected 1,900 early this week at its debut.
To avoid the monthly limit, it had received a November contracts allocation of 1,400. However, these efforts appear not to work for the current demand. As such, it could reach the maximum total position of 5,000 contracts soon. Currently, the asset under the management of the fund is valued at over $1 billion.
In this situation, BITO could continue to spread out its holdings into longer-dated contracts in the short term. However, this could result in the fund performance being distant from Bitcoin. Its tracking ability would be questionable since it needs to pay to rollover contracts, and currently, the futures curve slopes upwards.
In the view of Nate Geraci, president of the advisory firm The ETF Store, “The end result is the ETF will start taking on potentially significant tracking error versus the spot price of bitcoin.” He said, “The ETF is forced to obtain bitcoin price exposure at higher and higher prices as it goes further out on the futures curve.”
Despite the fact the CME’s effort by increasing BITO contracts with November futures, subsequent months would suffer the limit. While BITO may tackle it, the arrival of competitors could help overcome it. VanEck and Valkyrie Bitcoin futures-based ETFs would see approval later this week.
A senior ETF analyst at Bloomberg Intelligence, Eric Balchunas, believes that the high demand for BITO could influence SEC to quicken the approval of funds directly holding the asset. “That certainly would do the trick in slowing down BITO and providing a release valve for futures demand.”