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Investors will soon have a new tool for betting against
Bitcoin,
but they better make sure they are prepared for the risks.
ProShares said it will launch on Tuesday a short-Bitcoin futures exchange-traded fund, called Short Bitcoin Strategy. The ETF, which will have the ticker BITI, seeks to track the inverse performance of the S&P CME Bitcoin Futures Index and will have an expense ratio of 0.95%.
The fund comes about eight months after ProShares launched the
Bitcoin Strategy
ETF (BITO). That fund, which was the first long Bitcoin-futures ETF, topped $1 billion in assets within two days.
The new fund could be coming at an opportune time. Over the past few weeks, the crypto market has plunged into turmoil, with crypto banks freezing withdrawals, hedge funds collapsing, and firms announcing layoffs. Since peaking in November, Bitcoin’s price has plummeted nearly 70%.
“We all know that there are many people who are bearish about the short-term or the long-term prospects of Bitcoin or cryptocurrency in general,” said ProShares CEO Michael Sapir in an interview with Barron’s.
As of this past week, ProShares’ long Bitcoin fund’s assets have dwindled to about $640 million, according to Morningstar.
Sapir said he expects the fund to be popular both with investors who think Bitcoin will crash and with those who might still have a net-long position on Bitcoin but want to hedge their bets.
For ETF investors, the usual benefits and risks of an inverse ETF apply.
On the plus side, an inverse futures ETF could end up being cheaper and less risky than shorting Bitcoin directly on an exchange. Not all crypto exchanges even offer the ability to short the digital token, and those that do often charge high margin fees. What’s more, if Bitcoin rebounds, an investor who’s directly shorting it can face potentially unlimited losses.
On the other hand, inverse ETFs are designed to track the opposite of the performance of the index over merely one day. In times of heightened volatility, an investor who holds such a fund for longer than a day could get worse returns than they’d expect. An investor who sinks money into the ETF now would also be arriving after the original cryptocurrency has already lost two-thirds of its value. Nothing stops it from falling further, but Bitcoin has been known to go on torrid bull runs that could mostly erase an investor’s position.
While the SEC has given the nod to Bitcoin products based on futures, it so far has denied companies’ attempts to create ETFs tied to the spot Bitcoin market, citing potential manipulation on crypto platforms, among other issues. Sapir in the interview said he “sees no indication that regulators are ready to allow a spot-based ETF to come to market in the near future,” adding that he felt the recent turmoil makes it even more unlikely.
So what could come next? In addition to Bitcoin futures, the commodity markets also already trade futures tied to
Ether,
the second-largest digital token. While not confirming that ProShares would pursue Ether-linked ETFs, Sapir said, “It certainly would be an area that we would have interest in and that we think investors would have interest in.”
Write to Joe Light at [email protected]
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