The first US Bitcoin BTC exchange-traded fund is rapidly approaching a limit on the number of futures contracts it is allowed to hold, Bloomberg reported.
Just days after launch, the ProShares Bitcoin Strategy ETF BITO already owns nearly 1,900 contracts for October, and Chicago Mercantile Exchange CME limits the number of front-month contracts to 2,000.
After two days of trading, the fund already had more than $1 billion under management, read the report.
The Bitcoin Futures ETF amassed 1,400 November contracts in order to avoid breaching the limit, but judging by the unprecedented early volume, BITO could soon hit the maximum total position of 5,000 contracts.
The launch of competing products, such as Valkyrie s and VanEck s Bitcoin Strategy ETFs, could ease the demand for BITO.
One solution to avoid hitting the limit would entail BITO to spread its holdings into longer-dated contracts, but that poses a risk of further distancing the fund from the performance of Bitcoin.
The end result is the ETF will start taking potentially significant tracking error versus the spot price of Bitcoin, said Nate Geraci, president of advisory firm The ETF Store, Bloomberg.
The unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets beget more liquidity and assets, according to Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, who commented for the report.
The new ones will have some selling points such as only holding the front month or being cheaper and that will help, but it is nearly impossible to steal volume in the short or medium-term, he added, arguing that the momentum behind the ProShares fund will be hard to stop.
According to Balchunas, BITO s success and the clear issue of the potential capacity of futures may prompt the SEC to speed up the approval of Bitcoin spot ETFs.
That certainly would do the trick in slowing down BITO and providing a release valve for futures demand, he added for the report.