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Financial services company First Trust is the latest firm to apply for a Bitcoin exchange-traded fund (ETF). What’s interesting about the application is that it’s not for a spot ETF. On December 14, First Trust filed Form N1-A with the United States Securities and Exchange Commission (SEC) to launch a new product linked to Bitcoin, called the First Trust Bitcoin Buffer ETF.
According to details that stand out in the application, the fund is designed to maintain exposure to the positive price returns of a product such as the Grayscale Bitcoin Trust or another exchange-traded product (ETP) that provides a revenue model based on the performance of Bitcoin’s price. Unlike spot Bitcoin ETF products that are dependent on Bitcoin’s performance, the service considered by the company will utilize options aiming for a defined investment outcome.
A buffer ETF product is designed to protect investors from market downturn losses by setting a buffer or limit to the growth of a stock over a certain period. Known also as defined outcome ETF products, buffer ETF services use options to guarantee an investment outcome and aim to provide targeted downside protection in case of negative market returns.
Bloomberg ETF analyst James Seyffart shared a post on X to comment on the First Trust Bitcoin Buffer ETF, explaining that such funds provide a certain degree of protection against downside losses and cap upside gains. Seyffart explained this concept with the following statement:
“Expect to see other entries into the space with unique and differentiated strategies offering Bitcoin revenue models in the coming weeks.”
First Trust’s Bitcoin Buffer ETF service stands out as one of the first such ETF applications to the SEC. According to data from ETF.com, as of the writing of this article, there are 139 buffer ETFs trading in the US markets with a total asset value under management of $32.54 billion. Buffer ETFs are available across asset classes such as equities, commodities, and fixed income.
With the world’s largest ETF issuer BlackRock launching its first iShares buffer ETF services in June 2023, buffer ETFs have been increasing in recent years. According to TradingView data, the newly launched services iShares Large Cap Moderate Buffer ETF (IVVM) gained 5% and iShares Large Cap Deep Buffer ETF (IVVB) gained 2% in value.
