In a move to enhance investor risk management in the volatile crypto market, asset manager First Trust has filed for a Bitcoin Buffer ETF with the United States Securities and Exchange Commission (SEC).
Introduction to the First Trust Bitcoin Buffer ETF
On December 14, First Trust submitted a Form N1-A filing outlining its plans to launch the First Trust Bitcoin Buffer ETF. Unlike traditional spot Bitcoin ETFs, this innovative product aims to leverage options to achieve a specific investment outcome.
Buffer ETFs, also known as “defined-outcome ETFs,” utilize options to establish predetermined investment results. The primary objective is to shield investors from potential losses during market downturns by imposing a buffer or limit on a stock’s growth over a specific period.
Bloomberg ETF analyst James Seyffart highlighted on X (formerly Twitter) that these funds offer protection against a set percentage of downside loss while capping potential upside.
The Landscape of Buffer ETFs
First Trust’s Bitcoin Buffer ETF is among the first filings of its kind with the U.S. SEC. As of the latest data from ETF.com, there are currently 139 buffer ETFs trading on U.S. markets, collectively managing assets worth $32.54 billion. These buffer ETFs span various asset classes, including equity, commodities, and fixed income.
The popularity of buffer ETFs has surged in recent years, with industry giant BlackRock introducing its first iShares buffer ETFs in June 2023. The iShares Large Cap Moderate Buffer ETF (IVVM) and the iShares Large Cap Deep Buffer ETF (IVVB) have gained approximately 5% and 2% since their launch, respectively, according to TradingView data.
Cautionary Notes and Investor Considerations
While buffer ETFs offer a level of downside protection, it’s crucial for investors to note that these products do not guarantee complete protection. First Trust’s filing emphasizes the uniqueness of the fund’s characteristics, making it unsuitable for all investors.
BlackRock ETF expert Jay Jacobs further underscores the lack of assurance in a buffer ETF’s success in providing protection against underlying ETF losses, emphasizing the potential for investors to lose some or all of their investment.
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