The market celebrated the arrival of the first Bitcoin (CRYPTO:BTC) ETF on Tuesday. By Wednesday, the world's most valuable cryptocurrency token was hitting all-time highs.

ProShares Bitcoin Strategy ETF (NYSEMKT:BITO) couldn't have timed its market debut any better, and it opens the floodgates for other cryptocurrency vehicles to follow suit. However, ProShares Bitcoin Strategy ETF isn't perfect. Let's go over three reasons you may want to avoid the new buzz-generating investment.

Someone in a suit ripping open the shirt to show a Bitcoin logo t-shirt underneath.

Image source: Getty Images.

1. Back to the futures

The appeal of a Bitcoin ETF is fairly obvious given the booming popularity of the crypto bellwether. As of Thursday morning, the value of Bitcoin had risen 12% over the past week, 47% over the past month, and 404% over the past year. 

However, the new ProShares fund isn't buying actual Bitcoin. It was able to hit the market without the Securities and Exchange Commission slamming on the brakes as a futures-based investment. In short, it buys futures contracts on Bitcoin. We don't know if it would have cleared regulatory hurdles if it actually owned Bitcoin. 

This may not seem so bad at first. A futures contract tends to rise when the commodity it's representing moves higher and fall when the commodity is heading lower, but it's not a perfect proxy. Investors pay a premium for a futures or option contract that erodes as we get closer to expiration, and this is the problem.  

A major difference between futures and options is that someone buying a futures contract is expected to take ownership of the underlying asset, but ProShares Bitcoin Strategy ETF won't be doing that. It will just unload the futures contracts as they near expiration, swapping them out for new ones at a premium. It's a move that could eat into returns versus a spot-based ETF that actually owns and holds the crypto.

2. There are crypto investments trading at a discount 

ProShares Bitcoin Strategy ETF is technically the first crypto ETF, but it's not the only exchange-traded vehicle that's a pure play on Bitcoin. There are a couple of exchange-listed investments that own cold-stored Bitcoin, and the largest player here is Grayscale Bitcoin Trust (OTC:GBTC).

It trades on a U.S. exchange, but it operates as a trust to gain clearance under the current regulatory framework. Grayscale Bitcoin Trust is huge, with $42.3 billion in assets under management as of Wednesday's close. Like many of Grayscale's trusts, it's also currently trading at a discount. Grayscale Bitcoin Trust is currently fetching a price that is 15.3% below the value of the Bitcoin that it's holding.

Grayscale Bitcoin Trust's 2% annual expenses fee is more than double the 0.95% rate that ProShares Bitcoin Strategy ETF is charging. However, the steep discount and the fact that it actually owns the crypto make it a tempting alternative. 

3. You can buy Bitcoin itself

It's never been easier to buy cryptocurrency. A growing number of trading exchanges and fintech platforms are more than happy to feed your Bitcoin appetite. It's just a matter of time before traditional financial services operators afford you the option to diversify your assets into digital currencies. 

A big plus of buying into crypto directly is that you're not limited to the traditional stock exchange trading hours. There is no opening or closing bell on Bitcoin, as you can buy and sell around the clock. There are risks and limitations when it comes to direct ownership of Bitcoin, but for many it could be the better alternative than speculating on a futures-based ETF.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.