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The financial services firm First Trust is the latest company to file for a Bitcoin (BTC) exchange-traded fund (ETF), and not for a spot one.

First Trust on Dec. 14 submitted a Form N1-A filing with the United States Securities and Exchange Commission (SEC) to launch a new Bitcoin-linked product called the First Trust Bitcoin Buffer ETF.

According to the prospectus, the fund is designed to participate in the positive price returns — before fees and expenses — of the Grayscale Bitcoin Trust or another exchange-traded product (ETP) that seeks to provide exposure to the performance of Bitcoin.

Unlike a spot Bitcoin ETF, which is linked to the performance of Bitcoin, a buffer ETF uses options to pursue a defined investment outcome.

A buffer ETF is designed to protect investors from losses from a market drop by placing a buffer, or a limit on a stock’s growth, over a defined period. Also known as “defined-outcome ETFs,” buffer ETFs use options to guarantee an investment outcome and seek to provide a targeted level of downside protection in case markets experience negative returns.

Bloomberg ETF analyst James Seyffart took to X (formerly Twitter) to comment on the First Trust Bitcoin Buffer ETF, stating that these types of funds protect against a set percentage of downside loss with capped upside.

“Expect to see other entrants in the space with unique, differentiated strategies offering Bitcoin exposure over coming weeks,” Seyffart added.

First Trust’s Bitcoin Buffer ETF is one of the first such ETF filings with the U.S. SEC. According to data from ETF.com, there are 139 buffer ETFs trading on the U.S. markets at the time of writing, with total assets under management amounting to $32.54 billion. Buffer ETFs can be found in asset classes like equity, commodities and fixed income.

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

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

Despite the capabilities, a buffer ETF still doesn’t guarantee complete protection, as it might seem. “You may lose some or all of your money by investing in the Fund. The fund has characteristics unlike many other typical investment products and may not be suitable for all investors,” First Fund’s filing notes.

“There can be no guarantee that the fund will be successful in its strategy to provide downside protection against underlying ETF losses,” BlackRock ETF expert Jay Jacobs wrote in “5 Questions on Buffer ETFs.” A buffer ETF also doesn’t provide principal or non-principal protection, meaning that an investor may still lose the entire investment.

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