Financial services firm First Trust has taken a bold step into the cryptocurrency market by filing for a unique exchange-traded fund (ETF), marking a new era in Bitcoin investment strategies.
First Trust’s recently submitted Form N1-A filing with the United States Securities and Exchange Commission (SEC) unveils their latest product, the First Trust Bitcoin Buffer ETF. Unlike traditional spot ETFs directly linked to Bitcoin performance, this innovative fund employs a distinctive approach utilizing options to achieve a defined investment outcome.
The core idea behind this Bitcoin Buffer ETF is to safeguard investors from market downturns by imposing a cap on a stock’s growth within a specified period. Referred to as “defined-outcome ETFs,” these funds utilize options to ensure a predetermined investment result and aim to offer a targeted level of protection against downside risks amidst potential negative market returns.
Commenting on this groundbreaking development, Bloomberg ETF analyst James Seyffart highlighted the distinct advantage of such funds, noting they shield against a set percentage of losses while limiting potential gains. Seyffart predicts a surge of similar entrants in the space, each offering unique and differentiated strategies to tap into Bitcoin exposure in the coming weeks.
While this marks one of the initial ETF filings of its kind with the U.S. SEC, buffer ETFs have been gaining momentum in various asset classes. Presently, there are 139 buffer ETFs trading on U.S. markets, collectively managing assets worth $32.54 billion. These buffer ETFs span across diverse asset classes like equity, commodities, and fixed income.
The growth of buffer ETFs has been substantial, with major players like BlackRock stepping into the arena. BlackRock debuted its iShares buffer ETFs in June 2023, with products like the iShares Large Cap Moderate Buffer ETF (IVVM) and the iShares Large Cap Deep Buffer ETF (IVVB) registering impressive gains since their launch, according to TradingView data.
First Trust’s foray into the cryptocurrency landscape with the Bitcoin Buffer ETF indicates an evolving investment landscape, showcasing innovative strategies aimed at mitigating risks while exploring the potential of cryptocurrencies like Bitcoin in traditional investment portfolios.