No Safe Haven With Bitcoin ETFs

Long and short crypto bets post losses this year.

With bitcoin, exchange-traded fund investors can’t catch a break.  

After waiting for years to buy a bitcoin ETF in the U.S., investors piled into the ProShares Bitcoin Strategy ETF (BITO) when it launched 12 months ago. 

It hit $1 billion in assets under management in two days, a record for an ETF. 

Its timing couldn’t have been worse, and jubilation soon turned to frustration. Less than a month after it debuted, the price of bitcoin peaked and began a long 74% decline to its low point earlier this year. It’s still down 69% from its highs. 

 
Bitcoin Price 
 

BITO, a fund that holds front-month bitcoin futures contracts, has tracked the cryptocurrency nearly tick-for-tick lower. Since its first day of trading on Oct. 19, 2021, the price of the ETF is down 69.4%.  

That’s led to heavy losses for those early investors who helped the ETF set the $1 billion-in-assets speed record—as well as most investors who followed. Currently, BITO has $623 million in assets, less than half of the $1.8 billion that investors have put in. 

Today bitcoin is about 18% higher than its 2022 low set in June. At least a few BITO investors have made money. 

Works as Designed  

Besides its unfortunate timing, BITO hasn’t really done anything wrong. The main knock against it—that it holds bitcoin futures rather than the private keys that more directly represent ownership of bitcoin on the blockchain—hasn’t affected its performance much.  

Over the past year, the performance of BITO has lagged the performance of bitcoin by around 1.75%, and 0.95% of that is accounted for by the ETF’s expense ratio.  

That difference is a reflection of the relatively modest premium that later-month bitcoin futures contracts are commanding compared to front-month contracts. 

There’s almost no difference in price between the November bitcoin futures contracts that make up the majority of BITO’s holdings currently and the next-month December contracts. Even contracts one year out are only trading at a 4.5% premium—which can be almost completely attributed to the risk-free interest rate.  

That’s a far cry from a few years ago, when the bitcoin futures curve was in steep contango because the demand for futures was so high and there wasn’t enough capital willing to arbitrage the gap between spot bitcoin and futures contracts.  

Now that the bitcoin ecosystem is more mature, it’s likely that bitcoin futures, and by extension, BITO, will continue to closely track the cryptocurrency itself. 

That’s great for the ETF and its investors, but understandably little solace in the face of such disastrous price performance. 

Short Bitcoin 

If it’s any comfort for BITO longs, investors who bought the ProShares Short Bitcoin Strategy ETF (BITI) aren’t doing too hot either (misery loves company). 

The first inverse bitcoin ETF, which launched in June of this year, also somehow managed to have impeccably horrible timing. 

BITI came to market on June 21, three days after bitcoin hit its low for the year. That’s how the fund has managed to be down more than 11% since its debut, even in the midst of a monster bitcoin bear market. 

BITI has pulled in $96 million of assets since its launch, so not as many investors are nursing losses in this ETF as compared to BITO.  

Investors may imagine that at some point one of these funds will make a big run. For now, both are in the doghouse, and many investors can say they have been, well, bit. 

Follow Sumit on Twitter @sumitroy2