Bitcoin is a relatively new type of currency—a digital or cryptocurrency secured through cryptography, or codes that can’t be read without a key. Traditional currencies are made up of paper bills and coins. Unlike traditional currencies, the bitcoin is not issued by any central government. Rather, a computer algorithm determines how many bitcoins are produced and added to the economy. This is much different than a traditional currency, where central banks typically determine how much money to print.
A Bitcoin futures contract is exactly what you would expect from the example above, replacing pork bellies with Bitcoin. It is a contract that enables you to buy Bitcoin at a predetermined price at a specific point in the future. For example, if today’s Bitcoin price is 8,000 USD per BTC and you expect it to rise to 10,000 USD per BTC in 4 weeks, then entering a contract which allows you to buy Bitcoin at 9,000 USD in 4 weeks is highly attractive.
XBT futures is a cash-settled contract that settles to a single, tradeable auction price. In designing XBT futures, Cboe leveraged its significant product development expertise to design an instrument that allows participants to implement trading strategies in a manner to which they are accustomed. The single price settlement process gives participants the option of using XBT futures to hedge their exposure in underlying bitcoin or gain exposure to traded bitcoin prices without holding bitcoin.
The price of bitcoin on individual bitcoin exchanges, as well as the broader Bitcoin Exchange Market generally, has experienced periods of extreme volatility. This volatility is due in part to low liquidity and the changes exhibited by an early stage technological innovation. Speculators and investors who seek to profit from trading and holding bitcoin currently account for a significant portion of bitcoin demand. Such speculation regarding the potential future appreciation in the value of bitcoin may artificially inflate the price of bitcoin causing a negative impact on the performance of certain Funds which take a short position in bitcoin futures contracts. Conversely, government regulation and the perception of onerous regulatory actions may cause a drop in the price of bitcoin causing a negative impact on the performance of certain Funds which take a long position in bitcoin futures contracts. Developments related to the Bitcoin Network’s operations, Bitcoin Exchanges and the overall Bitcoin Exchange Market also contribute to the volatility in the price of bitcoin. These factors may continue to increase the volatility of the price of bitcoin which may have a negative impact on the performance of the Bitcoin Instruments and on the performance of the Funds.
Hey Will. Thanks for the helpful guide! I’ve just gotten into crypto and found this info extremely useful. Just a question regarding how you keep your alt coins safe. As far as I can tell, you can’t keep many of these alt coins on a Trezor hard wallet, so do you just use something like My Ether Wallet instead? Cheers mate! Here’s to a cracking 2018!!
• ETN Risk — The Fund is likely to obtain substantial exposure to the price movements of bitcoin by holding ETNs that provide exposure to the price of bitcoin. ETNs are unsecured, unsubordinated debt securities of an issuer that are listed and traded on a U.S. stock exchange. An ETN’s returns are generally linked to the performance of a particular market benchmark or strategy minus applicable fees. ETNs do not provide principal protection and may or may not make periodic coupon payments. ETNs are subject to credit risk, which is the risk that the issuer cannot pay interest or repay principal when it is due. Additionally, the value of an ETN may be influenced by time to maturity, level of supply and demand, volatility and lack of liquidity in the underlying market (e.g., the commodities market), changes in interest rates or the issuer’s credit rating, and other economic, legal, political or geographic events. The value of an investment in an ETN may be impacted by fees associated with the ETN. Structural aspects of the ETNs may impact their market value. Trading by affiliates of an ETN sponsor may create conflicts of interest. The issuer of an ETN may be unable to meet its obligations. The potential impact of Bitcoin Network forks on the value of a bitcoin ETN is unclear. ETNs issued by special purpose vehicles may include greater risk. ETNs are subject to risks associated with the underlying asset.
The Trust has adopted a policy regarding the disclosure of information about each Fund’s portfolio holdings, which is reviewed on an annual basis. The Board of Trustees must approve all material amendments to this policy. A complete schedule of each Fund’s portfolio holdings as of the end of each fiscal quarter will be filed with the SEC (and publicly available) within 60 days of the end of the first and third fiscal quarters and within 70 days of the end of the second and fourth fiscal quarters. In addition, each Fund’s portfolio holdings will be publicly disseminated each day the Funds are open for business via the Funds’ website at www.ProShares.com.
Since you bought 68.4246 BTC, you want to short 68 BTC and lock in the USD value. You will have 0.4246 BTC left over, which will give you a slightly long bias. You can either fix this by only buying 68 BTC in step 1 or by giving yourself more short exposure by shorting 69 BTC. Remember that CryptoFacilities contracts are inverse (which allow locking in USD) and are denominated in BTC