Asset management firm VanEck to close Bitcoin Strategy ETF

Asset management firm VanEck announced Wednesday that it will stop trading its Bitcoin Strategy ETF (XBTF) by January 30 and will remove the funds from the exchange by February 6.

Shareholders holding XBTF ETF are urged to divest their holdings before the specified date. Failure to do so will result in a cash settlement subsequent to the fund’s liquidation, and investors may face capital gains taxes if the distribution exceeds their original purchase price.

This development follows VanEck’s recent approval from the U.S. Securities and Exchange Commission (SEC) to launch a spot Bitcoin ETF. The board of trustees at VanEck endorsed the liquidation and dissolution of the Bitcoin Strategy ETF on the Cboe BZX Exchange.

“VanEck continuously monitors and evaluates its ETF offerings across a number of factors, including performance, liquidity, assets under management and investor interest, among others,” said VanEck.

“The decision was made to liquidate the Fund based on an analysis of these factors and other operational considerations.”

Launched in late 2021, XBTF was one of several ETFs that included holdings in Bitcoin futures contracts. As per VanEck’s website, the fund oversees assets totaling around $53 million.

The ETF experienced an average daily trading volume of $1.4 million, notably lower than its counterpart, the ProShares Bitcoin Strategy ETF (BITO). BITO has seen substantial inflows and volume since its launch in October 2021, benefiting from its status as the first futures product to enter the market.

While most Bitcoin futures ETF will likely shutter, etf.com analyst Sumit Roy noted that BITO maintains its resilience and holds nearly $2 billion in assets under management. This disparity in trading volume and investor interest highlights a preference for the first-mover advantage within the ETF industry.

VanEck’s decision to liquidate the fund’s assets and compensate investors with cash distributions underscores the challenges faced by less popular funds in attracting and retaining investors. Consequently, VanEck intends to provide cash distributions to investors equivalent to the net asset value of their shares following the fund’s liquidation.

The shift in crypto investment landscape

VanEck’s move to close its Bitcoin futures ETF comes amid a wave of changes in Bitcoin-related financial products. The company was part of the recent launch of the first U.S. spot Bitcoin ETFs, a big step forward in crypto investing.

While the futures-based Bitcoin ETFs currently hold around $2 billion in assets, VanEck anticipated a shift in investor preferences toward spot funds.

“We believe investor appetite would switch from products offering bitcoin futures exposure to direct bitcoin exposure [such as HODL],” VanEck director of digital assets product Kyle DaCruz wrote in an email.

“VanEck spot products should more closely track the price of bitcoin, as they don’t incur the costs associated with rolling futures contracts.”

Analysts also predicted a decline in interest in Bitcoin futures ETFs as funds holding actual BTC became available. Recent data show BITO experienced about $280 million in net outflows over the last two trading days, while new spot funds by BlackRock and Fidelity collectively attracted $1.2 billion in net inflows since their debut.

James Seyffart @JSeyff of Bloomberg discusses the competition among issuers of #Bitcoin ETFs as they strive to attract customers by offering a range of diverse services.

"The ETF industry is a winner take most, it's not winner take all." pic.twitter.com/zfIKbt3Nuw

— CryptoBusy (@CryptoBusy) October 26, 2023

Despite the changes, firms like Ark Invest, 21Shares and Bitwise continue to offer bitcoin futures ETFs. Valkyrie converted its bitcoin futures ETF into one holding ether futures contracts in October.

Meanwhile, Hashdex is also in the process of converting its Bitcoin futures ETF into one that provides exposure to spot BTC, pending review by the U.S. Securities and Exchange Commission.