First US Bitcoin ETF Reshapes Futures Market, Carries Hidden Risks
The BIS examines how the launch of the first US bitcoin ETF rapidly captures a massive share of the futures market and highlights the structural risks of its rolling strategy.
The first US bitcoin exchange-traded fund, known as BITO, launches in October 2021 and immediately becomes one of the most heavily traded ETFs in market history. The fund attracts over $1 billion in assets within just a few days of its debut. By relying on regulated Chicago Mercantile Exchange futures contracts instead of direct bitcoin holdings, BITO successfully navigates regulatory hurdles that previously blocked similar crypto funds.
BITO provides bitcoin exposure by taking long positions in near-term, one-month CME bitcoin futures contracts. As these contracts approach their expiration date, the fund gradually sells them and purchases longer-dated contracts in a continuous process known as rolling. Because bitcoin generally carries a positive cost of carry, the futures curve slopes upward, meaning longer-term contracts are typically more expensive than short-term ones.
This futures-based structure causes BITO to accumulate a significant portion of the market, grabbing about one third of all short-term bitcoin futures contracts within 10 days of launching. The Bank for International Settlements warns that this massive market footprint creates potential implications for prices and broader financial risks. The necessity of constantly rolling contracts into more expensive long-term futures also exposes investors to structural drag on returns.