In sports, a stat-busting rookie year isn’t always a harbinger of future success. Some stars begin their storied careers by traveling a rocky path at the beginning en route to success, which could mean a similar fate for the ProShares Bitcoin Strategy ETF (BITO).
The fund’s introduction was one of many firsts—the most impactful being the first exchange-traded fund (ETF) linked to Bitcoin. It gave the U.S. stock market a taste of what could be possible if a cryptocurrency-linked fund hit the traditional financial market.
Essentially, it meshed the nascent digital assets world with traditional finance. Whether this was embraced or not, it signaled a turn in accepting cryptocurrencies as a legitimate investment that should be taken more seriously.
Of course, the introduction of the fund a year ago was at the apex of a cryptocurrency bull market. Bitcoin looked like it was going to rocket past the $70,000 mark before falling back down to Earth or, given the way it has fallen this year, Earth’s core.
Bitcoin, the leading crypto based on market cap, has fallen about 60% for the year, which is being met with varying views on the future of cryptocurrencies in general. Detractors may see it as the beginning of the end, while pundits see an opportune buying trigger to pick up Bitcoin on the cheap.
Either way, BITO offers access to investors who are considering Bitcoin exposure but are not yet ready to dive into the Wild West crypto markets headfirst. Ultimately, this has been a win for BITO despite what the crypto market has been doing for most of the year.
“One could certainly argue that BITO has actually worked and performed as intended, all while offering investors an SEC-approved wrapper with the convenience, liquidity, and transparency of an investable ETF,” said Gregory d’Incelli, co-founder of Scenius Capital Management, in a Bloomberg article.
Any prospective investors worrying about whether a Bitcoin futures ETF can mimic the cryptocurrency’s price only need to look at the juxtaposed year-to-date chart of both assets. With a simple eye test, Bitcoin’s price and BITO appear to have a one-to-one correlation.
Silencing the Critics
One of the knocks against BITO is the expectation that factoring in roll costs for futures would cause the fund to underperform the cryptocurrency. That, however, hasn’t been the case, given its spot-on correlation with Bitcoin’s price.
“Instead, it was the behavior of the bitcoin futures market that drove BITO’s close tracking to spot bitcoin,” ProShares noted. “In contrast to a spot bitcoin market that many investors have found more challenging to access, the bitcoin futures market has become more inviting – with strong liquidity and contracts that trade on a regulated exchange.”
Meanwhile, the fund is still in a class of its own in the U.S. financial market, having survived the major roadblock of most cryptocurrency-based funds: the Securities and Exchange Commission (SEC). Spot Bitcoin ETF products have been trying to penetrate the marketplace, but to no avail—at least, it seems, in 2022.
For now, BITO provides the gateway for investors who want crypto exposure to diversify their assets but still within the safe confines of a regulated market. While the crypto market is growing and the government is looking into shoring up its regulatory structure, BITO can give investors the regulated crypto exposure they desire.
Additionally, the fund is actively managed, giving investors the peace of mind of knowing that their investment is in the hands of seasoned portfolio managers. Bitcoin can be a volatile asset, and active management can make portfolio changes on the fly when market conditions warrant an adjustment.
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