Once again Bitcoin is in the news. This time the hype is around a new exchange-traded fund (ETF) just introduced by ProShares. The headline news purports it to be a safer way to invest in Bitcoins by avoiding unregulated exchanges and loss-prone Bitcoin wallets. While the ETF structure does add a modicum of legitimacy around Bitcoin investing, this particular ETF may not do what you think it does.

When you open the hood you will discover that it does not invest in Bitcoins. It invests in Bitcoin futures contracts. These are contracts traded on the Chicago Mercantile Exchange (CME) enabling the holder to sell some number of Bitcoins at a predetermined price up to six months (or a year) in the future. The volatility experienced by this cryptocurrency has made it difficult to guess its price even one hour in the future. Imagine the accuracy of an investment basing its price on Bitcoin 4,300 hours from now. Good luck.

But that’s not the biggest issue with this new ETF. As I explained in previous articles about commodities, futures contract investing adds two additional types of risk: contango and backwardation. Contango occurs when the commodity’s expected future price is higher than its current (aka spot) price. Since the ETF has no mechanism to hold Bitcoins directly it has to roll over each futures contract it holds into a new contract before the existing contract expires. Unless the spot price of Bitcoin when the contract is rolled over is higher than the expected future price when the contract was purchased, the ETF will incur a loss. Furthermore if the new contract’s expected future price is higher than in the previous one, the new contract will cost more, further reducing any gains in the ETF.

Backwardation is when the futures price is lower than the spot price. While that sounds like a deal – you can buy into the commodity at a lower price that it costs today – it really means that its value is expected to decline in the future. The only way you can make money is if the actual future price turns out to be higher than what the futures market currently anticipates for that commodity. How often would you expect that to occur (and especially with Bitcoins)?

Contango and backwardation can be avoided by investing in the spot prices of commodities rather than in futures contracts. But that would require buying the commodity and storing it somewhere. That’s impractical for most commodities such as oil or wheat, but is possible for some precious metals such as silver and gold. As a result there are several spot-price gold and silver ETFs available for investment today.

With over $7 trillion currently supporting cryptocurrencies, other mutual fund companies must be drooling at the mouth in anticipation of participating in such a lucrative market. I have no doubt that in less than a year we will see some spot-price Bitcoin ETFs. That would be better than having to deal with futures. But unless and until we can identify some uniform way to value cryptocurrencies, they will remain a speculative gamble rather than a reliable investment.