BITO – New Bitcoin ETF is a Speculative Trading Vehicle That Will Trap Many Unsuspecting Investors and Financial Advisors

Chicago-based Stoltmann Law Offices is investigating exchange-traded funds (ETFs) linked to digital currencies. For a few years now, digital currencies have been on the forefront of a new age of speculation. Representing bits of computer code, the vast majority of these virtual coins aren’t backed by tangible things like gold, silver, or the full faith and credit of the U.S. government. But these cryptocurrencies have gained a lot of prominence over the last few years because of rapid increases in valuation on an exponential scale.  Investors want in, but many are reluctant to buy directly through myriad coin-exchanges. Wall Street wants their piece of the action too.  So, they’ve engineered a product, which will likely be the first of many, that will expose investors to the price of various cryptocurrencies, without requiring ownership of the underlying asset.  These investments are Exchange-traded funds based on futures contracts linked to these currencies and will be available to investors. Since there are multiple unknown variables in how these coins will trade, they present a dangerous new wave of risk for unwary investors.

The ProShares Bitcoin Strategy ETF (BITO) is the first such investment that will be offered to retail investors. Like most derivatives, the ETF will not directly hold the underlying asset, in this case the digital currency Bitcoin.  ProShares states “the Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.” A futures contract is a bet that an underlying asset will go up or down by a specific time. This is a derivatives strategy exposed to the price of Bitcoin which has historically been incredibly volatile.

According to Investment News, “the ETF employs a strategy like the Bitcoin Strategy ProFund Investor mutual fund (BTCFX) that ProShares’ affiliate company launched in July, which invests in Bitcoin futures contracts as opposed to the actual cryptocurrency, which is not yet allowed by U.S. regulators.”

“While the mutual fund represents a foot in the door of regulatory scrutiny, the ETF version essentially means wide-open access for any investor or financial adviser with access to a brokerage platform.”

Keep in mind that digital currencies, even though widely available, are subject to outlandish volatility. The range for Bitcoin prices over the past five years has been from roughly $600 to more than $64,000 per coin. They are not suitable for conservative investors seeking to preserve principal because they are notoriously volatile, don’t pay dividends or guaranteed interest. This is an investment suited for traders and speculators.

In other words, digital currencies are part of the Wild West of cyber investing. They are unregulated and traded in markets that are not transparent. Also keep in mind that futures prices – based on what investors think the currency will be worth – are often subject to wild swings and rampant speculation. Again, they don’t pay a fixed return or interest. You could lose a great deal of money by investing in them. The downside of these investments is often punishing.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!