Here’s how bitcoin futures ETFs performed in a dramatic week for crypto
by James · November 13, 2022
ETFs closely tied to the price of bitcoin served investors reasonably well as crypto proxies during a volatile week, even as losses for long-term holders continue to build. The ProShares Bitcoin Strategy ETF (BITO) and the Short Bitcoin Strategy ETF (BITI) both saw their largest daily trading volumes on record last week. Smaller funds from Valkyrie and VanEck also saw volume spikes. All four funds saw slightly bigger moves than the roughly 21% drop in spot bitcoin over the week. “It’s the evidence of getting the benefit of exposure through futures, but it’s also a sign of the strong demand from investors on both sides,” Simeon Hyman, global investment strategist at ProShares, said of the results of his firm’s funds. Applications for a true spot bitcoin ETF have consistently been rejected by the SEC, but the agency allowed bitcoin futures ETFs to launch. These futures are traded on the CME exchange, giving regulators more comfort. Bitcoin futures do not track spot bitcoin perfectly, and the ETFs may have additional costs for investors, such as the potential for rolling costs when the fund replaces expiring futures with new ones. The ProShares short bitcoin futures ETF is also a daily inverse fund, meaning performance is likely to deviate if held over a long period of time. However, bitcoin futures are also financially settled, meaning that no bitcoin changes hands or is held in an account. This reduces the risk that actual bitcoin could be lost by an owner or misused by a counterparty, as appears to have happened with the crypto exchange FTX. “There were real key advantages to getting exposure to bitcoin through futures … compared to the challenges one might find getting exposure using the exchanges, which just aren’t quite mature yet,” Hyman said. He added that rolling costs for bitcoin futures have come down sharply since the ETFs were launched. The dramatic declines for crypto raise long-term questions about the space, which had already sold off sharply from its peak late last year. ProShares’ long term fund is down about 75% since its debut in October 2021. There is a chance, if not a probability, that the recent price action, plus the high-profile collapse of FTX and Terra in May, will damage confidence in the sector, drive away users and hurting liquidity for all aspects of crypto, including bitcoin futures. “The bitcoin bear market started almost a year ago and it has mainly been institutions selling assets; we believe that retail investors are still holding positions (on average at a loss). … From market participation data over the past few years, bitcoin breakeven- levels and trading psychology, we believe retail investors may start selling if BTC trades below $10,000,” Morgan Stanley head of cryptocurrency research Sheena Shah said in a note to clients on Friday. But Hyman said he doesn’t believe the dramatic decline in crypto prices and the implosion of FTX “is the end of something” and that the industry will continue to mature over time. “We should look past this week a little bit, and for those who look past it, we think we put together a solution that did the job its this week,” by providing bitcoin exposure in both directions for many investors, Hyman said. — CNBC’s Michael Bloom contributed to this report.
