Bitcoin (BTC) has been on an impressive toll run since the announcement of the United States Securities and Exchange Committee'due south approval of ProShares' Bitcoin futures exchange-traded fund (ETF) early in October, hitting a new all-fourth dimension loftier of over $69,000 on November. 10, every bit per data from TradingView.

All the same, the fiscal watchdogs soured the mood past rejecting VanEck's proposal for a spot ETF on Nov. 12, which acted every bit a trigger for the price of the flagship cryptocurrency to driblet to a 30-day low of $55,705 on Nov. 19. The token is trading in the $56,000 range at the time of writing.

An ETF is a security form that tracks an nugget or basket of avails, in this instance Bitcoin, and tin can be traded on a stock exchange like any other stock. Proshares' BTC ETF was the start ETF to gain approval from the SEC after over 20 applications had been fabricated to the financial regulators in the past.

Jan van Eck, CEO of VanEck, wasn't happy about the rejection of his company's ETF.

The departure betwixt the approved Bitcoin ETFs trading currently across various stock exchanges in the U.S. such as the Nasdaq or CBOE and VanEck's rejected Bitcoin ETF is that VanEck'southward ETF proposal was for a spot ETF, and the approved ETFs are all futures-based ETFs.

Van Eck said that a spot ETF is the better choice, tweeting, "We believe that investors should exist able to proceeds #BTC exposure through a regulated fund and that a non-futures ETF structure is the superior approach."

SEC Chair Gary Gensler has previously voiced his support for futures-based BTC ETFs instead of price-based. In the official conclusion to turn down VanEck's ETF application, the SEC said that the product failed to meet the requirement "that the rules of a national securities exchange be 'designed to prevent fraudulent and manipulative acts and practices' and 'to protect investors and the public involvement.'"

Futures are often a higher-risk product

However, it could be that fiscal regulators in the U.Southward., in rejecting VanEck'south spot ETF, have unleashed a risker product on the same investors it aims to protect, as it allows institutional Wall Street money to leverage Bitcoin's toll movements.

A futures contract gives the holder or buyer of the contract the obligation to buy the underlying asset and the writer or seller of the contract the obligation to sell and evangelize the asset at a specified price on a specified future appointment unless the holder closes their position prior to the expiration date.

Combined with options, these financial instruments are often used to hedge other positions in the investor's portfolio or make profits from pure speculation without needing to purchase the underlying asset. These markets are usually dominated by institutional investors that have deep pockets to buffer any losses in their portfolio.

Although futures could be used solely to minimize take a chance in an investor's profile, where they go riskier is the utilize of leverage in futures markets. Leverage is the ability to use borrowed funds and/or debt as trading uppercase in the market to amplify returns from a position. Substantially, it is used by investors to increase their buying power multifold in the markets.

Related: Inflationary winds from around the globe spell a bounding main alter for Bitcoin

While leverage besides exists in the spot markets, its impact is significantly smaller. Nonetheless, with futures contracts, the leverage could be upwardly to 95%, which entails that an investor can easily purchase an options contract with 5% of the required capital and infringe the residuum. This ways any small fluctuations in the price of the underlying asset will accept a big impact on the contract, leading to a margin call for investors due to forced liquidations of futures contracts.

A margin call is a scenario wherein the value of the investor'due south margins has fallen below the exchange or banker'southward required corporeality. This calls for investors to deposit an amount known equally maintenance margin to the account to furnish back to the minimum allowed value. This could as well lead to investors having to sell other assets in their portfolios to make up for this amount.

It is important to note that these risks inherent for futures contracts accept nothing to do with the nature of the underlying products, only from the methodology by which futures contracts are traded beyond financial markets. Du Jun, co-founder of cryptocurrency exchange Huobi Global, spoke to Cointelegraph virtually the SEC's conclusion:

"Given the current situation, futures ETFs may be the best choice accepted past the SEC. It's true that futures ETFs are often circuitous with a college risk contour, just the futures ETFs have some characteristics that satisfy the SEC'due south demand."

Jun believes that, to begin with, regulators still haven't figured out the procedure to set BTC's spot toll, thus leading them to retrieve that the price is vulnerable to manipulation; and then, futures ETFs unlinked to BTC directly would offer investors better protection.

Furthermore, futures ETFs give investors the opportunity to get both long and short on BTC, thus hedging their BTC avails instead of belongings units with physically backed BTC.

Antoni Trenchev, co-founder of crypto trading platform Nexo, told Cointelegraph, "The SEC doesn't seem prepare to let spot ETFs just yet. I accept a hunch this will happen in the nearly-to-mid future, as before long equally U.S. regulators are confident in their policies and treatment of Bitcoin and other digital assets." He said that ultimately, both of these products are just financial tools, and the SEC will want to take a multifariousness of options available.

He noted the SEC's hesitance to take risks, stating, "They're simply unwilling to take whatsoever risks, which is in itself commendable because the high pressure from eager investors to have spot ETFs in the U.S."

However, non all marketplace participants have a positive outlook about the SEC'south approach. Marie Tatibouet, chief marketing officer of crypto substitution Gate.io, told Cointelegraph, "It took the U.S. SEC around four years to figure out how a futures BTC ETF works. It volition probably take them two to three years more to figure out spot ETFs."

Tatibouet said that since BTC futures contracts aren't linked to the price of Bitcoin directly but to the price of Bitcoin futures, the prices of which are "style easier" to manipulate than spot prices, this could exist one of the reasons that the SEC approved futures ETFs.

Canada supports spot ETFs

While the launch of Bitcoin futures ETFs in the U.S. was celebrated by the community as a watershed moment for the cryptocurrency asset class, information technology was not the outset country to allow crypto-related ETFs. The U.S.' friendly neighbor, Canada, has had Bitcoin ETFs trading on various exchanges for about of this year.

Canada saw the launch of the first Bitcoin ETF in Due north America, the Purpose Bitcoin ETF, in February this year. This is a physically backed spot Bitcoin ETF that has been successful ever since its launch. Evolve Investments too launched the Evolve Bitcoin ETF soon subsequently, which is also a spot ETF. The Purpose Bitcoin ETFs and the Evolve Bitcoin ETF currently have $1.4 billion and $203 one thousand thousand in assets under management, respectively. The companies backside these ETFs have also gone on to launch Ether (ETH)-based ETFs following the success of their Bitcoin ETFs.

Related: Why now? SEC took 8 years to authorize a Bitcoin ETF in the US

Nexos' Trenchev said, "Canada could be thought of every bit the El salvador of Spot BTC ETFs. They've been bachelor there for some time now, and things seem to be working out. It's ever an reward to have examples to look to — regardless of how successful or unsuccessful they are — and I'g certain this will be the instance when it comes to spot ETFs in the U.S."

Jun noted the differences in the legal landscape in the U.S. and Canada, stating, "Canada's regulatory environment is more than flexible, and Canada is more focused on innovation. It oft dares to have the atomic number 82 in financial innovation, like the showtime modern ETFs in 1990 and the offset launch of cannabis ETFs in 2022. Merely the U.S. market regulatory surroundings is much stricter."

Offering a new perspective on the matter, legendary trader Peter Brandt took to Twitter to mention how BTC maximalists should oppose ETFs and spot ETFs completely.

It is arguable whether ETFs volition support the growth of BTC as an asset in the long term in the fashion originally intended, and it is undeniable that the developments of crypto ETFs have a large affect on market sentiments and thus, eventually, the price of Bitcoin, which is primal to the whole discussion at manus.