First Trust, one of the leading providers of exchange-traded products (ETPs) in the US, has announced the launch of its first Bitcoin Buffer ETF. This is a new kind of ETP that aims to protect crypto investors from significant losses in the volatile market.
The Bitcoin Buffer ETF is an exchange-traded fund that tracks the performance of an underlying ETP that invests in Bitcoin futures contracts. The underlying ETP is designed to offer exposure to Bitcoin without requiring direct ownership or custody of the cryptocurrency.
The main feature of the Bitcoin Buffer ETF is that it provides a buffer against large price declines in Bitcoin. According to the filing with the Securities and Exchange Commission (SEC), the fund will protect up to 30% of its losses at the end of each target outcome period.
This means that if the underlying ETP loses more than 30% of its value in any given period, such as a month or a quarter, then the fund will also lose 30% of its value. However, this buffer does not apply before taking into account fees and expenses charged by the fund.
If the Underlying ETP decreases in price by more than 30% over the Target Outcome Period, the Fund will experience all subsequent losses on a one-to-one basis (i.e., if the Underlying ETP loses 35%, the Fund loses 5%), said the filing.
The fund will also be affected by other factors, such as brokerage commissions, trading fees, taxes and extraordinary expenses that are not included in its management fee.
ETF Race Heats Up Amid Crypto Anticipation
First Trust is one of the leading providers of ETPs in North America, with over $128 billion in assets under management as of 2023. The company offers a wide range of ETPs across various asset classes, sectors, regions, and strategies.
In June, BlackRock, a top investment asset management firm, submitted an application to the SEC for a Bitcoin ETF, choosing Coinbase as its custodian. This move by BlackRock prompted other industry giants like Fidelity Investments, WisdomTree, Valkyrie, VanEck, and Invesco to file similar applications.
The broader crypto industry is eagerly anticipating the SEC’s approval for these applications. Companies continue to negotiate with the regulator about spot Bitcoin ETF applications, and recent signs have been positive.
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