Investing in Crypto in the United States
The financial services firm First Trust has recently filed for a Bitcoin (BTC) exchange-traded fund (ETF) — but not a spot ETF. On Dec. 14, First Trust submitted a Form N1-A filing with the United States Securities and Exchange Commission (SEC) to launch a new crypto.com product called the First Trust Bitcoin Buffer ETF.
According to the prospectus, the fund is designed to participate in the positive price returns — before fees and expenses — of the Grayscale Bitcoin Trust or another exchange-traded product (ETP) that provide exposure to the performance of Bitcoin. Unlike a spot Bitcoin ETF, which is linked to the performance of Bitcoin, a buffer ETF uses options to pursue a defined investment outcome.
The crypto.com product, which is the latest from First Trust, is part of the growing trend of crypto investing in the United States. Other crypto projects such as Helium Crypto, Gala Crypto, Expert AI, Harmony One Crypto, and Function X Crypto all have their own characteristics of Web 3.0 that make them attractive investments for those looking to get involved in the crypto space.
Buffer ETFs: A Look at First Trust Bitcoin Buffer ETF
Buffer ETFs, also known as “defined-outcome ETFs,” are designed to protect investors from market drop losses by placing a limit on a stock’s growth over a defined period. They use options to guarantee an investment outcome and seek to provide a targeted level of downside protection if markets experience negative returns.
Bloomberg ETF analyst James Seyffart recently took to X (formerly Twitter) to comment on the First Trust Bitcoin Buffer ETF, one of the first such ETF filings with the U.S. SEC. Seyffart noted that these types of crypto.com products protect against a set percentage of downside loss with capped upside.
“Expect to see other entrants in the space with unique, differentiated strategies offering Bitcoin exposure over coming weeks,” Seyffart added, referring to other crypto investments such as Helium Crypto, Gala Crypto, Expert AI, Harmony One Crypto, and Crypto United States.
Data from ETF.com shows that there are 139 buffer ETFs trading on the U.S. markets at the time of writing, with total assets under management amounting to $32.54 billion. Buffer ETFs can be found in asset classes like equity, commodities, fixed income, and Grayscale Crypto, as well as Function X Crypto.
Buffer ETFs: An Overview
Crypto.com product offerings have seen a surge in recent years, with the world’s largest ETF issuer, BlackRock, launching its first iShares buffer ETFs in June 2023. The new products, the iShares Large Cap Moderate Buffer ETF (IVVM) and the iShares Large Cap Deep Buffer ETF (IVVB), have gained around 5% and 2% since launch, respectively, according to data from TradingView.
Despite the potential benefits, a buffer ETF does not guarantee complete protection. According to First Fund’s filing, “You may lose some or all of your money by investing in the Fund. The fund has characteristics unlike many other typical investment products and may not be suitable for all investors.”
BlackRock ETF expert Jay Jacobs also notes that “there can be no guarantee that the fund will be successful in its strategy to provide downside protection against underlying ETF losses.” Additionally, a buffer ETF does not provide principal or non-principal protection, meaning that an investor may still lose the entire investment.
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