First Trust files for Bitcoin ‘Buffer ETF’ with SEC

Financial services firm First Trust is the latest company to file for a Bitcoin (BTC) exchange-traded fund (ETF) — but not a spot ETF.

On December 14, FirstTrust filed a Form N1-A with the United States Securities and Exchange Commission (SEC) to launch a new bitcoin-related product called the FirstTrust Bitcoin Buffer ETF.

According to the prospectus, the fund is designed to provide exposure to the performance of the Grayscale Bitcoin Trust or other exchange-traded funds (ETP) with positive returns — before fees and expenses — to Bitcoin.

Unlike a Bitcoin ETF, which is linked to the performance of Bitcoin, a buffer ETF uses options to track a specific investment outcome.

A buffer ETF is designed to protect investors against market downturns by placing a limit on the growth of a buffer or stock over a period of time. Also known as “defined yield ETFs,” buffer ETFs use options to guarantee investment performance and seek to provide targeted downside protection if markets experience negative reactions.

Bloomberg ETF analyst James Seifert took to X (formerly Twitter) to comment on the First Trust Bitcoin Buffer ETF, stating that these types of funds protect against a loss-making percentage of the portfolio.

“Expect to see other registrants in the space in the coming weeks to see more unique strategies,” Seifert added.

FirstTrust just launched the #Bitcoin Buffer ETF. These types of funds protect against a series of % down losses. In the coming weeks, expect to see other entrants into the space with a variety of strategies offering exposure to Bitcoin. h/t @VildanaHajric pic.twitter.com/1qiWF53dM0

— James Seyff (@JSeyff) December 14, 2023

First Trust's Bitcoin Buffer ETF is one of the first ETFs to file with the US SEC. According to data from ETF.com, there are 139 buffer ETFs trading in the US markets as of this writing, with total assets under management of up to $32.54 billion. Buffer ETFs can be found in asset classes such as equities, commodities and fixed income.

Buffer ETFs have been ballooning in recent years, with the world's largest ETF provider, BlackRock, launching its first iShares buffer ETFs in June 2023. The new products, iShares Large Cap Moderate Buffer ETF (IVVM) and iShares Large Cap Deep Buffer ETF (IVVB), are up around 5% and 2% since launch, respectively, according to data from TradingView.

Related: TMX buys 78% of ETF arm VettaFi for $848M, increasing stake to 100%

Despite its potential, a buffer ETF still does not guarantee full protection, it may seem. “You may lose some or all of your money by investing in the Fund. The Fund has characteristics different from many conventional investment products and may not be suitable for all investors,” First Fund's filing notes said.

“There can be no guarantee that a fund will be successful in its strategy of hedging against underlying ETF losses. A buffer ETF does not offer core or non-core protection, which means an investor could still lose the entire investment,” says BlackRock ETF expert Jay Jacobs in “5 Questions on Buffer ETFs.” .

Magazine: Legislators' fear and skepticism fuel proposed crypto regulations in the US.