The long-awaited Bitcoin ETF may finally become a reality, but not in the way many investors expected. Recently, the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, made it clear that he is open to the idea of a crypto ETF.

While bitcoins and other cryptocurrencies can be bought easily from financial platforms such as Robinhood (ticker: HOOD) and PayPal (PYPL), ETFs will eliminate issues on digital wallet management and allow investors to integrate digital currency into their portfolios.

In addition, Bitcoin ETFs can have two structures:

- directly own coins (similar to gold ETFs);

- hold futures contracts that place a bet on whether the price will rise or fall (like many oil and other commodity ETFs).

At least two dozen fund managers have applied for ETFs that will physically hold crypto assets. And the most popular Bitcoin ETF alternative, the $ 30 Billion Grayscale Bitcoin Trust (GBTC), also contains real bitcoins and plans to convert them to ETFs as soon as regulators allow it.

But the SEC has been wary of regulating the crypto market, refusing to approve a Bitcoin ETF for years. So when US President Joe Biden appointed Gensler, who, in addition to leading the Commodity Futures Trading Commission (CFTC), taught cryptocurrency and blockchain technology at MIT, investors were upbeat.

Gensler's recent comments seem to signal more openness to ETFs that track bitcoin futures than bitcoin itself. This led to a flood of new Bitcoin ETF futures applications from financial managers including ProShares, Invesco, VanEck, Valkyrie Digital Assets and Galaxy Digital.

Regulators may be tempted to do this because futures are traded and operated by the Chicago Mercantile Exchange, while the crypto market remains, in Gensler's words, a "Wild West" rife with "fraud, fraud and abuse."

Grayscale CEO Michael Sonnenshein said the SEC should approve both types of bitcoin ETFs at the same time and allow investors to choose. Allowing one but not the other would create an uneven playing field.

Grayscale is currently trading 14% lower because of declining demand. If the SEC approves Bitcoin ETFs that are futures-based only, more investors are likely to move assets. This would push down Grayscale's price and hurt existing investors.

In any case, like most mutual funds, bitcoin futures ETFs will need to be registered under the Investment Companies Act 1940, which requires asset managers to disclose more information and comply with stricter rules. The physical Bitcoin ETF will not be taxed because it will be treated like a commodity and not a security.

Todd Rosenbluth, director at CFRA, said: "Futures prices usually track underlying assets, but there is always some slippage. The gap can be especially noticeable for a volatile asset like Bitcoin."

Futures ETFs need to roll over their contracts at expiration, usually on a monthly basis. If futures are trading higher than the real-time price, funds will have to pay a premium to roll them over, which could reduce yields. They also offer additional protection as they require investors to deposit funds as cash as collateral. And unlike mutual funds, ETFs cannot come close to new money if it gets too big. If bitcoin futures become volatile and many investors want to exit at the same time, liquidity problems could arise. The exchange may even stop trading to slow down panic selling. This means that investors in a futures ETF may not get out on time.