The first Bitcoin-linked futures exchange traded product (ETF) is a year old. It was the first one available to retail investors. At debut, it promised to bring much-needed legitimacy to the cryptocurrency market. The Bitcoin Futures ETF was a great success, but mainly for fund managers.
ProShares Bitcoin Strategy ETF (BITO) offered investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid and transparent way. The aim was to provide capital appreciation through managed exposure to bitcoin futures contracts.
It did provide exposure, but with exposure came risk. The fact that it lost 1.2 billion dollars explains why BITO ETF investors are not happy.
Bitcoin futures gained popularity among institutional investors, but retail investors are lukewarm about investing in them.
Bitcoin Futures ETF Operations
Operational performance was near-flawless. But cryptocurrency volatility, the depth of the market for futures and the cost of rolling its underlying contracts have all fallen by the wayside in 12 months of solid functioning for the ProShares Bitcoin Strategy ETF.
The ETF saw strong demand from loyal investors and in return it fulfilled its promise to successfully track the biggest digital asset.
BITO’s performance, on the other hand, is another story. If investors have a longer timeframe, they may be rewarded.
The fund has slumped over 70% since its launch, tracking a crypto collapse that dragged Bitcoin to under $20,000. At a year old, BITO has posted cumulative inflows of more than $1.8 billion, but recently only had $619 million left.
“It’s been a bad year — we’re looking at $1.2 billion burned,” said Bloomberg Intelligence analyst James Seyffart.
“But if you just want exposure to Bitcoin, BITO is the best option in the ETF landscape, at least in the US.”
BITO was not a world-first ETF. The Winklevoss brothers tried to create ETFs in 2013 and 2017, but the SEC was not interested. By the time BITO launched on October 19, 2021, the US was playing catch-up to other countries.
Canada was first, with the first physically settled Bitcoin ETF to gain approval.
Greg Taylor, Purpose Investments’ Chief Investment Officer (Canada) said at the time that the inflows are proof of pent-up investor demand to gain exposure to cryptocurrencies.
“A lot of people have wanted to get exposure to bitcoin but they haven’t really wanted to go through the hoops of opening up their own accounts or their own wallet to do so or trading some of the other closed-end funds,” Taylor said. “Having the ETF option I think has always been the holy grail out there and we’re happy to have it trading and we’re seeing some of the results of that pent-up demand.”
In the USA, there are currently 12 bitcoin futures ETFs. Sadly, returns on all of them are in negative territory.
Now might be a good time for new bitcoin-linked ETFs to start up, for investors who haven’t already jumped in. Those funds might want to use a different strategy.