The financial services firm First Trust is the latest company to file for a Bitcoin (BTC) exchange-traded fund (ETF) \u2014 but not a spot ETF.<\/p>\n
On Dec. 14, First Trust\u00a0submitted a Form N1-A filing with the United States Securities and Exchange Commission (SEC) to launch a new Bitcoin-linked product called the First Trust Bitcoin Buffer ETF.<\/p>\n
According to the prospectus, the fund is designed to participate in the positive price returns \u2014 before fees and expenses \u2014 of the Grayscale Bitcoin Trust or another exchange-traded product (ETP) that provide exposure to the performance of Bitcoin.<\/p>\n
Unlike a spot Bitcoin ETF, which is linked to the performance of Bitcoin, a buffer ETF uses options to pursue a defined investment outcome.<\/p>\n
A buffer ETF is designed to protect investors from market drop losses by placing a buffer or a limit on a stock\u2019s growth over a defined period. Also known as \u201cdefined-outcome ETFs,\u201d buffer ETFs use options to guarantee an investment outcome and seek to provide a targeted level of downside protection if markets experience negative returns.<\/p>\n
Bloomberg ETF analyst James Seyffart took to X (formerly Twitter) to comment on the First Trust Bitcoin Buffer ETF, stating that these types of funds protect against a set percentage of downside loss with capped upside.<\/p>\n
\u201cExpect to see other entrants in the space with unique, differentiated strategies offering Bitcoin exposure over coming weeks,\u201d Seyffart added.<\/p>\n
First Trust\u2019s Bitcoin Buffer ETF is one of the first such ETF filings with the U.S. SEC. According to data from ETF.com, 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 and fixed income.<\/p>\n
Buffer ETFs have been ballooning in recent years, with the world\u2019s largest ETF issuer, BlackRock, debuting\u00a0its 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 added around 5% and 2% since launch, respectively, according to data from TradingView.<\/p>\n
Related: <\/em><\/strong>TMX buys 78% of ETF tool VettaFi for $848M, boosting stake to 100%<\/em><\/strong><\/p>\n Despite the capabilities, a buffer ETF still doesn\u2019t guarantee complete protection, as it might seem. \u201cYou 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,\u201d First Fund\u2019s filing notes.<\/p>\n \u201cThere can be no guarantee that the fund will be successful in its strategy to provide downside protection against underlying ETF losses,\u201d BlackRock ETF expert Jay Jacobs wrote in \u201c5 Questions on Buffer ETFs.\u201d A buffer ETF also doesn\u2019t provide principal or non-principal protection, meaning that an investor may still lose the entire investment.<\/p>\n