BITO bitcoin ETF is headed for trouble with position limits looming

BITO bitcoin ETF is headed for trouble with position limits looming

Bitcoin ETF has used up two-thirds of its position limit

Bitcoin ETF has used up two-thirds of its position limit
Bitcoin is down today so there might be some flows out of the new US bitcoin ETF (BITO) that launched on Tuesday. The larger problem is that it is destined to run into position limits. According to Bloomberg, it can only hold 5000 futures contracts due to CME rules and is already two-thirds of the way there. Another $600m would get it to the limit.

An option is to buy longer dated contracts but that’s going to introduce a negative tracking error with long-dated futures trading above spot. I don’t see the volume slowing down so eventually this is going to be a big problem.

This all comes back to the SEC, which has tried to shove everything into the futures market to please the people at the CME. In something like oil — which is extraordinarily difficult to store, transport and physically transact — a futures-based ETF makes sense but in bitcoin it’s stupid.

An ETF holding ‘physical’ bitcoin is obvious and should have been approved five years ago. There’s no tracking error and it would have alleviated so many problems with scam brokers and the huge tracking error in the Greyscale bitcoin trust. Hopefully this expedites it.

In any case, it makes you wonder why every decision seems to benefit the CME.

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