Should Long-Term Investors Buy the New Bitcoin Future ETF?

Bitcoin (BTC 0.88%) recently hit a new all-time high, and investors seem more excited than ever about what the digital currency could offer their portfolios. And now, with the launch of the ProShares Bitcoin Strategy ETF (BITO -1.16%) on Oct. 19, the hype only seems to be growing.

In this segment of Backstage Pass, recorded on Oct. 15 just days before the ETF's public debut, Fool contributors Toby Bordelon, Rachel Warren, and Trevor Jennewine discuss whether long-term investors should consider buying in. 

Toby Bordelon: Let's do this that's we're 10 minutes left. Let's hit our bonus question, I think we're trying to do this. We're going to hit our bonus question really quickly. We'll try to quickly on this. This is an interesting one I saw. I did not check the news and last couple of hours, I don't think it was officially availed, it looks like the SEC is set to allow the first future-based Bitcoin ETF to start trading maybe as early as next week. The way it is going to happen, they're not going to stop it.

That's what it looks like there. The companies have proposed a couple of ETFs, Invesco, ProShare, and it looks like the SEC is taken the position that that's going to be fine, they're not going to do anything to stop that trading.

They're future base ETFs, the idea is they're trying to track the price of Bitcoin, make it easy for investors to invest in Bitcoin where they're getting these future contracts that do that, because what you can't do right now, you can't have a pure-play ETF that's backed by the actual Bitcoin.

You can't buy a pool of Bitcoin and securitize that into an ETF, you have to use your contracts to mimic the price. Direct futures trading is already allowed on the Chicago Mercantile Exchange and that's the contracts you're going to be using to make these ETFs work. What do we think, good idea, bad idea?

Rachel Warren: I'll go first.

Toby Bordelon: It's over to you Rachel.

Rachel Warren: I'm not a Bitcoin aficionado here, I'm not currently invested in Bitcoin, it's not something I writer about a lot, but I just think this was interesting. I think one of the more obvious benefits, like what you said it makes it easier for people who aren't maybe completely in tune with the concept of Bitcoin to trade Bitcoin. I think the concept of Bitcoin, at least when I will talk with people it's still fuzzy to some. It's like what actually am I buying [laughs]. There's obviously a lot of great articles on Fool.com that explains all the ins and outs.

But I think there's this idea of you don't have to go through a crypto exchange or any other platforms right now you can maybe go through regular brokerage, I guess, because it's based on futures contracts, if I understand correctly. I think that that could be a benefit specifically if you're really new to investing in cryptocurrency, I think that this isn't really a novel concept that Bitcoin is definitely more on the speculative end of the investment spectrum.

It can be definitely part of a balanced portfolio depending on what your personal risk tolerance is. I think if someone's maybe even thinking about investing in Bitcoin and the traditional mode of investing in it has been off putting. This could perhaps be something that would entice more investors to look into it. Futures contracts, do you have some of their own downsides, minimal control, usually as an investor, price fluctuations. It could be a risky venture.

I think if at some point down the road a pure-play Bitcoin ETF ever entered the picture that would be a completely different story though, I think that would be actually really interesting. I think we're a long way off from that though.

Toby Bordelon: What about you Trevor?

Trevor Jennewine: I think risky was a great word to use there [laughs] I don't know, I guess I see the advantage if you don't feel comfortable holding the Bitcoin or you don't know how to buy it safely, or you want like that day-to-day volatility, I guess, but I think it makes sense. I'm not going to be rushing out to buy this ETF.

I think it makes sense if you're interested in Bitcoin, I think it makes sense to buy it directly. I think this makes things more complicated, more risky. It's definitely an interesting situation, but I think that this is going to make it easier for people to lose money.

Toby Bordelon: That's my fear. I think some people are going to get burned with this. There is potential for a lot of loss here. Bitcoin aside, when you use futures contracts to do something like this, there are higher costs for one, you got to roll these future contracts and get a lot of trading costs in there. That can get messed up, there are ways people can manipulate this, can start run you with they know when you have to roll your contracts.

Bitcoin itself is quite volatile, that's going to be as the price of futures contracts. We'll see how this goes. Like you said Trevor I wouldn't buy Bitcoin, if I directly and I wouldn't look at this as my answer. At least not yet, let these trades for while and see how they react, but definitely interesting development. We're having to see how it goes, I think we'll see what borrowing and the other announcement from the SEC, I think it's probably could happen as early as next week. It's something to watch.