ProShares Bitcoin Strategy ETF

ProShares Bitcoin Strategy ETF is an exchange-traded fund incorporated in the USA. The ETF seeks capital appreciation. There can be no assurance that the Fund will achieve its investment objective. The Fund does not invest directly in bitcoin. The Fund seeks to provide capital appreciation primarily through actively managed exposure to bitcoin futures contracts.

BITO actively manages a portfolio of front-month CME bitcoin futures.

The ProShares Bitcoin Strategy ETF ($BITO) is the first bitcoin futures ETF to trade on a major U.S. exchange.

Since it's a futures ETF, the fund holds futures contracts for bitcoin assets but does not hold bitcoin itself. Futures-based ETFs can be riskier than traditional ETFs, per the SEC.

Bitcoin ETFs allow investors to invest in the future of this cryptocurrency without investing directly. Proponents of bitcoin ETFs say that this broadens access to bitcoin to larger groups of investors who may not want to invest in bitcoin directly. 

One important consideration is that ETFs often come with management fees, and the approved Bitcoin Strategy ETF is no different, with a listed management fee of 0.95%.

The fact that the first bitcoin ETF is a futures ETF is important. There is a cost associated with “rolling” futures contracts and this means that a bitcoin futures ETF will not perfectly track the spot price of bitcoin.

Individual investors can already invest in bitcoin and as many as 13% of Americans have invested in crypto so far in 2021 according to one University of Chicago study.

In order for an ETF to become available to investors, it must be approved by the Securities and Exchange Commission (SEC) and registered under the Investment Company Act of 1940.

BITO saw about $1 billion of trading volume on its first day of trading, making it the second-most heavily traded ETF debut on record.

More than 24 million shares changed hands during its first trading day, according to data compiled by Bloomberg.

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Jordan Finneseth is a Crypto Market Reporter for Kitco Crypto. Coming from a background in Psychology and Human Behavior, he began to focus his attention on the cryptocurrency space in early 2017 after noticing the rapid growth of this emerging market.

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We think BITO is inferior to other spot-based BTC products due to the fund's high expense ratio and futures-based approach to getting crypto exposure. High transaction costs, liquidity constraints, and a uniquely inefficient 'rolling' mechanic should cause structural underperformance vs. the underlying going forward. Despite some niche use cases, BITO's structure results in substantial performance drag making it a sub-optimal long-term investment.

BITO's Underperformance Is Likely To Continue

I have a hold rating on the ProShares Bitcoin Strategy ETF due to mixed macro risks and bearish seasonality in the near term. The Fed's anticipated rate cuts could benefit Bitcoin, but a stronger US dollar and historical seasonal weakness in August and September pose risks. BITO offers exposure to Bitcoin futures, not directly to Bitcoin, and has returned 35.3% year-to-date compared to spot Bitcoin's 43.3% gain.

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ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures. Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield. Key catalysts for Bitcoin's future growth include increased retail and institutional investor exposure via Bitcoin spot ETFs and the recent halving event reducing new Bitcoin supply.

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News for ProShares Bitcoin Strategy ETF ETF (BITO)