Teucrium, an agricultural commodities ETF provider based in Vermont, filed Thursday an application for a Bitcoin futures Exchange-Traded Fund. The “Teucrium Bitcoin Futures Fund” would trade on the NYSE Arca exchange and track the price of CME’s BTC futures contracts, the company said in its filing.
An Exchange-Traded Fund, or ETF, is a publicly-traded fund that tracks the price of an underlying asset, in this case, Bitcoin futures. It’s a way to invest in Bitcoin futures on the stock market, providing institutional investors with easy exposure to the popular derivatives product.
Futures are, essentially, bets on the future price of an asset or commodity. In Teucrium’s native industry, agriculture, a farmer might sign a contract with a supplier in the spring so that they can receive a fixed price for their crops come harvest time. Since the farmer has to sell those crops at the agreed-upon price, the farmer would still make money in the event of a poor harvest while sacrificing the opportunities offered by a bumper crop.
If Bitcoin rises above the agreed-upon price, the person who signed the futures contract is “in the money” and stands to make a profit if they sell their cheaply acquired Bitcoin. Institutional investors also use futures products to ensure that they can repay large Bitcoin loans if the price goes through the roof.
The Chicago Mercantile Exchange, the world’s largest futures exchange, first listed Bitcoin futures in 2017. In February this year, it launched Ethereum futures. These futures are settled in cash, meaning investors can’t redeem them for Bitcoin when the contracts mature.
The U.S. Securities and Exchange Commission has never approved a listing for a Bitcoin ETF, despite numerous attempts. Teucrium’s filing now joins a host of other firms hoping to win the regulator’s favor, including VanEck, NYDIG, and Wilshire Phoenix.
A key differentiator between these and Teucrium’s filing is that previous ETF attempts have all invested directly in Bitcoin, whereas the Vermont-based firm is investing in futures contracts.
The SEC’s main reason for rejecting a Bitcoin ETF is that the market is inherently vulnerable to manipulation, no matter which price index an ETF tracks. In a note on May 11, the regulator told investors that they should also “consider the volatility of Bitcoin and the Bitcoin futures market.”
After an extremely volatile week, these concerns remain at the forefront of the ETF conversation. At press time, Bitcoin trades just above $40,000. That’s $10,000 above its low of roughly $30,000 on Wednesday.