By Yasin Ebrahim

Investing.com – scaled $60,000 this week and is closing in on all-time highs, amid growing optimism a bitcoin futures exchanged traded fund could be approved as soon as next week, and eventually lay out the carpet for a bitcoin exchanged traded fund.

The increase in sales was 8%, to $62,036, which is less than the 64,900 all-time high.

The Securities and Exchange Commission is widely expected to green light a the futures-based bitcoin exchange-traded funds, or ETFs, proposed by ProShares and Invesco, CNBC reported late-Friday, citing unnamed sources familiar with the matter.

While the path to the bitcoin ETF is not easy, it has had many rejections and delays. However, in the last few months, there has been an increase in the SEC’s interest in the possibility of creating an ETF which holds bitcoin futures. This is a legal security.

“One of the reasons regulators will like a BTC futures-based ETF is the fact that the underlying asset, a BTC futures contract, is already regulated by the Chicago Futures and Trading Commission,” Seamus Donoghue, vice president strategic alliances at Metaco, told Investing.com in an interview on Friday.

What is good for the regulator, however, isn’t necessarily appealing for the long-term investors. Unfortunately, bitcoin futures have a bad reputation as they don’t do a very good job of matching the price performance of bitcoin.

Unlike a spot bitcoin ETF, a bitcoin futures exchange-traded fund doesn’t directly own or hold bitcoin, but rather bitcoin futures.

Futures contracts are agreements to purchase or sell assets at a fixed price and at a specific date. There are additional complexities or costs to consider when determining the futures price.  

These costs, or “carry” in trading parlance, include interest, financing costs, and storage costs in the case of commodities that lead to a futures price that is higher, or trades at a premium above the spot price of the underlying asset — a dynamic known as contango.

Investors expect bitcoin’s future price to rise as it becomes more scarce. This will further exacerbate the contango dynamic.

For institutional investors who want to buy and hold bitcoin for the long-term, but aren’t permitted to directly hold BTC, a futures-based bitcoin ETF can lead to significant underperformance – particularly when the price of bitcoin moves sideways.

“If the price of the Bitcoin moves sideways, but you’ve always had very positive premiums in the futures price, you’ll have significant losses,” Donoghue said.

Futures, however, aren’t typically used for long-term investing, but rather for speculating, or hedging, the latter of which has proved valuable for bitcoin investors.

Donoghue stated that “I don’t believe anybody would suggest, if your goal is to hold a position within an asset class, you can long-term buy and keep it through the futures markets.”

An ETF that tracks bitcoin futures could offer investors additional tools for managing the volatile swings in its price. Bitcoin has a reputation of having large 30 to 50% dropdowns.

“One of the issues of crypto for institutional investors has always historically been the difficultly in hedging away some of the volatility or at least manage that volatility,” Donoghue added. Futures allowed for a bit more risk management in relation to the delta of the fundamental risk.

The added flexibility, however, isn’t what has added a spring the step of bitcoin bulls.

Investors have a bigger chance of success if a bitcoin ETF is launched using futures. This will allow for a U.S.-listed bitcoin ETF to be created, which will closely mirror the bitcoin price performance and may also open up the doors to more crypto adoption.  

Donoghue said that while it is the first step, “I think it will be the second step and possibly in the third step we’ll be getting spot bitcoin ETF. However, timing remains unknown.” “A spot bitcoin ETF would be a very close proxy to trading the underlying bitcoin, and provides better access to everybody if its listed.”