First Trust Files for Bitcoin Buffer ETF in Evolving Market Landscape

The filing adds First Trust's ETF to the growing market, with BlackRock launching buffer ETFs in 2023.

First Trust Files for Bitcoin Buffer ETF in Evolving Market Landscape
First Trust Files for Bitcoin Buffer ETF in Evolving Market Landscape

First Trust, a corporation that provides financial services, is the most recent company to submit an application for a Bitcoin exchange-traded fund (ETF); however, it is not considered a spot ETF.

First Trust filed a Form N1-A with the United States Securities and Exchange Commission (SEC) on December 14 in order to create a new Bitcoin-linked product that will be known as the First Trust Bitcoin Buffer Exchange-Traded Fund (ETF).

The prospectus states that the fund aims to participate in the positive price returns of the Grayscale Bitcoin Trust or any exchange-traded product (ETP) that provides exposure to the performance of Bitcoin. These fees or charges may be incurred.

In contrast to a spot Bitcoin exchange-traded fund (ETF), which is dependent on the growth of Bitcoin, a buffer ETF makes use of options in order to seek a predetermined investment outcome. A buffer exchange-traded fund (ETF) aims to shield investors from the devastating effects of market declines by imposing a restriction or buffer on the growth of a stock over a predetermined time period.

Buffer exchange-traded funds, often called “defined-outcome ETFs,” utilize options to ensure investment outcomes and target protection against losses in the event of negative market returns. During his commentary on the First Trust Bitcoin Buffer ETF, Bloomberg ETF analyst James Seyffart took to X (which was then known as Twitter) to make his point.

He stated that these kinds of funds offer protection against a predetermined percentage of losses on the downside while limiting profits on the upside. According to Seyffart, “Over the next few weeks, you can anticipate seeing additional entrants in the space with distinctive and differentiated strategies that offer exposure to Bitcoin.”

First Trust filed the Bitcoin Buffer Exchange-Traded Fund (ETF) with the United States Securities and Exchange Commission (SEC), making it one of the first ETFs of its kind. At the time of writing this article, the markets in the United States had 139 buffer exchange-traded funds (ETFs) trading, with total assets under management amounting to $32.54 billion.

ETF.com provided this information. ETFs that act as buffers can be available in a variety of asset types, including fixed income, commodities, and equity. Recent years have seen a significant increase in the number of buffer exchange-traded funds (ETFs), with BlackRock, the largest ETF issuer in the world, launching its first iShares buffer ETFs in June 2023.

According to statistics provided by TradingView, the newly introduced products, the iShares Large Cap Moderate Buffer ETF (IVVM) and the iShares Large Cap Deep Buffer ETF (IVVB), have contributed approximately 5% and 2%, respectively, since their respective launches from the beginning.

In spite of these characteristics, a buffer ETF does not provide complete protection, despite the fact that it may appear to do so entirely. If you choose to invest in the fund, you run the risk of losing some or all of your money.

The registration for First Fund indicates that the fund possesses characteristics that are distinct from those of many other common investment products and that it may not be appropriate for all investors.

In an article titled “5 Questions on Buffer ETFs,” Jay Jacobs, a specialist in exchange-traded funds (ETFs) at BlackRock, emphasized that there is no guarantee of the fund’s success in its strategy to provide downside protection against underlying ETF losses.

It is also important to note that a buffer ETF does not offer principal or non-principal protection, which means that an investor still runs the risk of losing their entire investment.