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The financial services company First Trust has recently submitted an application for a Bitcoin (BTC) exchange-traded fund (ETF) — though it is not a spot ETF.
On December 14, First Trust filed a Form N1-A with the United States Securities and Exchange Commission (SEC) to introduce a new Bitcoin-related product named the First Trust Bitcoin Buffer ETF.
The prospectus indicates that the fund aims to capture the positive price returns — prior to fees and expenses — of the Grayscale Bitcoin Trust or another exchange-traded product (ETP) that offers exposure to Bitcoin’s performance.
In contrast to a spot Bitcoin ETF, which is directly tied to Bitcoin’s performance, a buffer ETF employs options to achieve a specific investment outcome.
A buffer ETF is structured to shield investors from losses during market downturns by establishing a buffer or limit on a stock’s growth over a specified timeframe. Also referred to as “defined-outcome ETFs,” buffer ETFs utilize options to ensure a particular investment result and aim to deliver a targeted level of downside protection in the event of negative market returns.
Bloomberg ETF analyst James Seyffart shared insights on X (formerly Twitter) regarding the First Trust Bitcoin Buffer ETF, noting that such funds offer protection against a predetermined percentage of downside loss while capping potential gains.
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“Anticipate seeing additional participants in this sector with distinct, varied strategies providing Bitcoin exposure in the upcoming weeks,” Seyffart remarked.
First Trust’s Bitcoin Buffer ETF represents one of the initial ETF filings with the U.S. SEC. As per data from ETF.com, there are currently 139 buffer ETFs trading on U.S. markets, with total assets under management reaching $32.54 billion. Buffer ETFs are available across various asset classes, including equity, commodities, and fixed income.
Buffer ETFs have experienced significant growth in recent years, with the largest ETF issuer, BlackRock, launching its first iShares buffer ETFs in June 2023. The newly introduced products, the iShares Large Cap Moderate Buffer ETF (IVVM) and the iShares Large Cap Deep Buffer ETF (IVVB), have seen increases of approximately 5% and 2% since their inception, respectively, according to TradingView data.
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Despite their features, a buffer ETF does not guarantee total protection, as it may appear. “You may lose some or all of your investment in the Fund. The fund possesses characteristics that differ from many conventional investment products and may not be appropriate for all investors,” First Trust’s filing states.
“There can be no assurance that the fund will succeed in its strategy to provide downside protection against losses in the underlying ETF,” BlackRock ETF specialist Jay Jacobs noted in “5 Questions on Buffer ETFs.” A buffer ETF also does not offer principal or non-principal protection, indicating that an investor may still incur a total loss of their investment.
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