Spot vs Futures Bitcoin ETFs: What's the Difference?
Understand the key differences between spot and futures Bitcoin ETFs. Learn how each type works, their pros and cons, and which is better for your investment goals.
Spot vs Futures: The Key Difference
The fundamental difference between spot and futures Bitcoin ETFs comes down to what the fund actually holds:
- Spot ETF: Holds actual Bitcoin in secure custody
- Futures ETF: Holds Bitcoin futures contracts (agreements to buy Bitcoin at a future date)
This difference affects tracking accuracy, costs, and long-term returns.
How Spot Bitcoin ETFs Work
A spot Bitcoin ETF directly purchases and holds real Bitcoin. When you buy shares:
- Fund buys Bitcoin: Your investment funds the purchase of actual BTC
- Secure custody: Bitcoin is stored in institutional-grade cold storage
- Direct tracking: Share price reflects the real-time Bitcoin spot price
- 1:1 relationship: More fund assets = more Bitcoin held
Spot ETF Structure
Investor buys shares → Fund receives cash → Fund buys Bitcoin → Bitcoin stored in custodyCanadian Examples:
- Purpose Bitcoin ETF (BTCC-B) - Custodian: Gemini
- Fidelity Advantage Bitcoin ETF (FBTC) - Custodian: Fidelity Digital Assets
- CI Galaxy Bitcoin ETF (BTCX-B) - Custodian: Coinbase
US Examples:
- iShares Bitcoin Trust (IBIT) - Custodian: Coinbase
- Fidelity Wise Origin Bitcoin Fund (FBTC) - Custodian: Fidelity Digital Assets
- ARK 21Shares Bitcoin ETF (ARKB) - Custodian: Coinbase
How Futures Bitcoin ETFs Work
A futures Bitcoin ETF holds Bitcoin futures contracts instead of actual Bitcoin:
- Contracts purchased: Fund buys CME Bitcoin futures
- No Bitcoin held: The fund never owns actual cryptocurrency
- Derivative tracking: Performance based on futures prices, not spot
- Rolling required: Contracts must be replaced as they expire
Futures ETF Structure
Investor buys shares → Fund receives cash → Fund buys futures contracts → Contracts rolled monthlyExamples:
- ProShares Bitcoin Strategy ETF (BITO) - US, first Bitcoin futures ETF
- Horizons Bitcoin Front Month Rolling Futures ETF (HBIT) - Canada
Head-to-Head Comparison
| Feature | Spot ETF | Futures ETF |
|---|---|---|
| What it holds | Real Bitcoin | Futures contracts |
| Tracking accuracy | Very close to Bitcoin price | Can diverge from spot price |
| Rolling costs | None | Ongoing (contango/backwardation) |
| Expense ratio | Generally lower | May have hidden costs |
| Regulatory status | Approved US Jan 2024, Canada since 2021 | US approved since 2021 |
| Best for | Long-term holding | Short-term trades |
The Contango Problem with Futures ETFs
Futures-based ETFs face a structural issue called contango:
What is Contango?
When futures contracts for delivery next month trade at a higher price than the current spot price. This is the normal state of Bitcoin futures markets.
How Contango Hurts Returns
Every month, a futures ETF must “roll” its expiring contracts into new ones:
- Sell expiring near-month contracts
- Buy more expensive far-month contracts
- This “roll cost” eats into returns
Example:
- Current Bitcoin spot price: $50,000
- Near-month futures (expiring): $50,000
- Far-month futures (next month): $51,000
The fund must sell at $50,000 and buy at $51,000—a 2% loss just from rolling. Over a year, these costs compound.
Historical Impact
Studies have shown futures-based Bitcoin ETFs can underperform spot Bitcoin by 10-15% annually in sustained contango markets.
When Futures ETFs Can Outperform
In backwardation (when futures trade below spot), futures ETFs can actually gain from rolling. This occurs when:
- Market expects lower future prices
- Short-term demand exceeds supply
- Liquidation events create selling pressure
However, backwardation is less common in Bitcoin markets than contango.
Why Spot ETFs Are Generally Better
For most long-term investors, spot Bitcoin ETFs are preferable:
1. Better Tracking
Spot ETFs closely follow Bitcoin’s actual price. No roll costs mean the ETF return matches Bitcoin’s return minus management fees.
2. Lower Total Costs
While expense ratios look similar, futures ETFs have hidden costs:
- Roll costs (contango)
- Trading costs from frequent contract rolls
- Cash drag (futures require margin, not full deployment)
True cost comparison:
- Spot ETF: 0.25-1.00% MER (that’s it)
- Futures ETF: 0.95% MER + 5-15% annual roll costs
3. Simpler Structure
Spot ETFs are straightforward:
- Buy Bitcoin, hold Bitcoin, track Bitcoin
- No derivatives, no rolling, no complexity
4. Regulatory Approval
SEC approval of spot Bitcoin ETFs in January 2024 validated this structure. Canada approved spot ETFs back in 2021.
When Futures ETFs Might Make Sense
Despite disadvantages, futures ETFs have limited use cases:
Short-Term Trading
If you’re making tactical trades of days or weeks, roll costs are negligible. The short-term correlation to Bitcoin remains high.
No Spot ETF Access
Before US spot ETF approval, futures ETFs were the only regulated option for US investors. This is no longer a limitation.
Specific Portfolio Mandates
Some institutional portfolios may have rules requiring derivatives-based exposure rather than direct commodity ownership.
Canadian Advantage: Spot ETFs Since 2021
Canada approved spot Bitcoin ETFs years before the US:
| ETF | Launch Date | Type | MER |
|---|---|---|---|
| Purpose Bitcoin ETF (BTCC) | Feb 2021 | Spot | 1.00% |
| Evolve Bitcoin ETF (EBIT) | Feb 2021 | Spot | 0.75% |
| CI Galaxy Bitcoin ETF (BTCX) | Mar 2021 | Spot | 0.40% |
| Fidelity Advantage Bitcoin ETF (FBTC) | Dec 2021 | Spot | 0.39% |
Canadian investors have had access to spot exposure for nearly four years, benefiting from:
- No contango losses
- Direct Bitcoin tracking
- TFSA/RRSP eligibility
Choosing the Right ETF Type
Choose Spot If:
- You’re investing for the long term (1+ years)
- You want accurate Bitcoin price tracking
- You want to minimize costs
- You’re holding in registered accounts (TFSA/RRSP)
Consider Futures Only If:
- You’re making short-term tactical trades
- You have specific regulatory/mandate requirements
- No spot option is available (no longer true in major markets)
Common Questions
Can I tell if an ETF is spot or futures from the name?
Not always. Look at the fund documents or prospectus. Terms like “Strategy,” “Futures,” or “Rolling” often indicate futures-based products.
Do spot ETFs pay dividends?
Bitcoin doesn’t generate income, so spot ETFs typically don’t pay regular dividends. Some may distribute capital gains annually for tax purposes.
Are futures ETFs riskier?
Both carry Bitcoin’s volatility risk. Futures ETFs add complexity risk and tracking risk, but not necessarily more price risk.
Why did the US approve futures ETFs before spot?
Regulatory politics. The SEC was more comfortable with CME-regulated futures than direct Bitcoin custody. Canada’s regulators took a different approach, approving spot ETFs first.
Can a futures ETF convert to spot?
Theoretically yes, but it would require SEC approval and fund restructuring. No major futures ETF has announced such plans since spot ETFs launched.
Summary
| Investor Type | Recommended ETF Type | Reason |
|---|---|---|
| Long-term holder | Spot | Lower costs, better tracking |
| TFSA/RRSP investor | Spot | Maximize tax-advantaged growth |
| Day trader | Either (spot slightly better) | Short-term, minimal roll impact |
| First-time crypto investor | Spot | Simpler, more predictable |
For the vast majority of investors, spot Bitcoin ETFs are the clear choice. They offer:
- Direct Bitcoin exposure
- Accurate price tracking
- Lower total costs
- Simpler structure
The arrival of US spot Bitcoin ETFs in January 2024 was a watershed moment, giving global investors access to the same efficient structure Canadians have enjoyed since 2021. When building long-term Bitcoin exposure, spot is the way to go.
Disclaimer: This article is for educational purposes only and should not be considered financial or investment advice. Always do your own research and consult with a qualified financial advisor before making investment decisions.