ProShares will introduce a short-Bitcoin futures exchange-traded fund tomorrow on the New York Stock Exchange to track the inverse behavior of the S&P CME Bitcoin Futures Index.
The new Short Bitcoin Strategy ETF comes as the world’s largest cryptocurrency flirts with levels not seen since 2020. Additionally, a broader crypto market rout has also left many participants in decentralized finance out in the cold.
With bitcoin down 70% from a November peak, the CEO of the Bethesda, Md. firm that launched the ProShares Bitcoin Strategy ETF in October last year believes that this is the ideal scenario for their new product. “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,” Michael Sapir told Barrons. The new short-Bitcoin ETF will operate under the ticker symbol BITI and is hopes to attract those betting on bitcoin’s demise and those with long positions in bitcoin looking for a hedge.
Concerns about tracking errors dismissed
The launch of ProShares Bitcoin Strategy ETF followed an eight-year push to launch ETFs tracking the price of bitcoin directly. The Securities and Exchange Commission deems spot ETFs too risky due to the risk of fraud and market manipulation and has yet to approve such a product, despite fierce lobbying from digital asset heavyweight Grayscale, including threats of a potential lawsuit.
Discrepancies between the futures market and the tracked assets are a downside with futures ETFs, especially considering bitcoin’s volatility. The ProShares Bitcoin Strategy ETF currently holds about $640 million in assets, down from nearly $1 billion on its debut.
Sapir, however, remains optimistic. “Based on how the futures market has been tracking the spot market, we are confident that the inverse product will track well as well,” he told the Wall Street Journal.
Market volatility could result in massive losses
While betting against bitcoin’s performance in this current bear market appears tantalizing, it is worth remembering that inverse ETFs track daily performance, and a long-term investor could experience significant losses. Investors would also be joining the market after bitcoin’s plummet from rarefied heights reached in November last year, without any certainty that the market will continue its bearish trend. Considering the potential for a bull run that culminated in a peak price of a shade under $70K, the risk of losing big still lurks in the shadows.
While SEC chair Gary Gensler has voiced support for ETFs trading bitcoin futures, the SEC still advises caution when investing.
“Before investing in a fund that holds bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits,” it tweeted in October last year.
Sapir said he sees no signs of the SEC approving a bitcoin spot ETF any time soon. He also floated the possibility of ethereum-linked ETFs in ProShares’ future, despite pulling out from SEC filings last year.
Ethereum is changing hands at $1127, down almost 77% from its peak in November 2021, according to Coingecko.
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