First Bitcoin ETF Is Already in Danger of Breaching a Limit on Futures Contracts

Just days after launch, the first U.S. Bitcoin futures exchange-traded fund risks becoming too popular for its own good.

The Proshares Bitcoin Strategy ETF (ticker BITO) is already on track to breach a limit on the number of futures contracts it is permitted to hold by the Chicago Mercantile Exchange, according to data compiled by Bloomberg.

After two days trading BITO owns nearly 1,900 contracts for October, and CME rules cap the number of front-month contracts one entity can own to 2,000.

To avoid hitting the limit, the ETF has also amassed 1,400 November contracts. But at the rate it’s adding assets -- the fund already has more than $1 billion under management -- the maximum total position of 5,000 contracts could be in view soon.

An immediate solution is for BITO to spread out its holdings into longer-dated contracts. However, that risks further distancing the fund from the performance of Bitcoin. Its ability to efficiently track the largest cryptocurrency is questionable anyway because it has to pay to roll over contracts, and the futures curve currently slopes upward.