First Trust Plans to Launch Buffer Bitcoin ETF
First Trust, an asset management firm, has filed a Form N1-A with the SEC to launch the First Trust Bitcoin Buffer ETF. Unlike spot Bitcoin ETFs, this product aims to provide investors with protection against downside risk while still being exposed to BTC’s performance.
Buffer ETFs, also known as defined-outcome ETFs, use options to offer targeted protection during market downturns. These funds limit losses for investors by providing a buffer in exchange for a cap on potential gains.
The First Trust Bitcoin Buffer ETF will track the performance of the Grayscale Bitcoin Trust or another BTC ETP and provide a buffer against the first 30% of losses over a specified period.
“The cap and buffer will be further reduced by any brokerage commissions, trading fees, taxes, and extraordinary expenses not included in the Fund’s management fee. At the end of the Target Outcome Period, the Fund will reset for a new Target Outcome Period tied to the Underlying ETP and buffer, but the cap may change based on market rates as of the start of the new Target Outcome Period,” First Trust stated in the prospectus.
No Guaranteed Protection
While the buffer ETF aims to achieve specific results, there is no guarantee of complete protection for investors. First Trust acknowledges that investors may still lose some or all of their money when investing in this fund.
As multiple asset management companies compete to launch spot Bitcoin ETFs in the US, First Trust’s buffer ETF application adds to the growing interest in cryptocurrency-based investment products. The SEC’s decision on these applications is eagerly awaited by the crypto community and expected by January.
Buffer ETFs have gained popularity since 2018 and have become a significant part of the ETF market, attracting over $27 billion in assets, according to a report by Charles Schwab.
Hot Take: First Trust’s Innovative Approach to Bitcoin ETFs
First Trust’s decision to launch a buffer Bitcoin ETF demonstrates the growing demand for innovative investment products in the crypto space. By offering targeted protection against downside risk while still participating in BTC’s performance, this type of ETF appeals to investors seeking a balance between risk management and potential returns.
While there is no guarantee of complete protection, buffer ETFs have gained traction in the market and have become a significant part of the ETF landscape. As the SEC continues to review applications for spot Bitcoin ETFs, the introduction of buffer ETFs adds another dimension to the evolving crypto investment landscape.
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