Bitcoin futures fund

 
Bitcoin logo tp.png

Bitcoin is a new investment asset, but its unique attributes also make it challenging for most investors to access. The custody issue was solved for institutions through the introduction of listed Bitcoin futures.

BFF opens access to managed Bitcoin futures to institutional and independent investors.

 

Bitcoin as an Asset Class

Asset Correlation

Bitcoin Gold (GLD) S&P 500 (SPY) 20-Year Treasuries (TLT)
Bitcoin 1 -0.12 0.18 0.19
Gold (GLD) -0.12 1 -0.04 0.6
S&P 500 (SPY) 0.18 -0.04 1 -0.15
20-Year Treasury Bonds (TLT) 0.19 0.6 -0.15 1

Investors may be interested in exposure to Bitcoin for a number of reasons including as a diversification tool or as the largest representative of cryptocurrencies.

 

Source: Bloomberg, based on 1 Month Rolling Returns from 12/31/15 through 9/30/18


Accessing bitcoin

 
BFF Digital Wallet Crypto Hedge Fund GBTC
Custodian
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Theft/Loss by Password
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Direct Ownership
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Tax reporting
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Peer-to-peer Trading
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Premium to NAV
None
None
None
50%‡
Expense Ratio
Fixed
None
2%/20%
Fixed

‡ 1. Individual investors in GBTC do not directly need to remember a password, but the Trust does have password risk.
2. The investor owns shares of GBTC, but does not directly own the assets held by the trust.
3. Average 52 week % premium was 48.26 as of 12/5/2017 according to Bloomberg.

Although Bitcoin is the most widely accepted cryptocurrency, there are a number of complications in holding them for traditional investors.

As a result, we believe that the most reliable solution for investors who would like exposure to Bitcoin is to do so indirectly via managed Bitcoin futures.

 
 

FAQ

+ What are the major challenges to owning Bitcoin?

Custody

Bitcoin ownership requires maintenance of a digital wallet which the owner self custodies. This makes owners vulnerable to theft/loss, forgetting/misplacing or sharing their password or being targeted by hackers. The most signficant hack on Bitcoin was Mt. Gox.

Estate Planning

When estate planning, direct owners of Bitcoin should devise a way to pass their private keys without revealing it to intermediaries such lawyers, accountants, etc. or the Bitcoins will be vulnerable to theft.

Taxation

Direct ownership of Bitcoin requires the investor to understand their own tax reporting obligations without any guidance from a custodian.

+ How do Bitcoin futures solve the above mentioned problems?

Custody

Bitcoin futures do not have an associated digital wallet with private keys as futures are simply a representation of future price movements of an asset. As is standard for futures, they are held in an account with a registered futures broker who will maintain the investor's account and guarantee their trades.

Estate Planning

Since futures are custodied at a financial institution, the risk of an intermediary copying the private key and anonymously stealing the futures is eliminated.

Taxation

A registered broker should provide the necessary forms for filing taxes. In the United States, these contracts are considered 1256 Contracts and are just as simple to complete as for stocks and bonds.

+ Why aren’t Bitcoin futures more mainstream?

Managing and trading futures has traditionally been done by a very small subset of financial professionals who focus deeply in a specific product area. Furthermore, many investment professionals that service clients do not have the specific registrations to invest in these products on behalf of their clients.

+ Are there any Bitcoin ETFs?

Currently no. The SEC has not yet approved any, and it is uncertain when they will. The difficulty again is related to custody. If a Bitcoin ETF is based on real Bitcoin, then the ETF will have signficant exposure to custody risk. Currently, there is no well known insurance provider willing to cover these risks.

There is an over the counter (OTC) trust named GBTC that is available to Accredited and Institutional Investors. However, it is still vulnerable to custody risk and over the last year has had an average premium to Bitcoin of approximately 50%.