How ETF investors can invest in cryptocurrency
Digital currency investors have been under pressure this year due to a number of factors, from fears of inflation and recession to a liquidity crisis among high-profile crypto companies. Bitcoin’s steady free fall has brought the flagship coin down almost 70% of its historic high in November last year.
For investors considering a bitcoin bet, ProShares launched BITI, the first US short bitcoin-linked ETF, on June 21.
“This is the companion to BITO, the long-running bitcoin strategy ETF,” Simeon Hyman, Global Investment Strategist at ProShares, told CNBC’s ETF Edge on Monday. “And we wanted to be able to offer investors the short exposure.”
BITI operates reverse (-1x) to the S&P CME Bitcoin Futures Index, and offers an opportunity to potentially profit from the decline. The ETF is linked to bitcoin futures contracts and is rebalanced every day.
“What we have seen in recent months with the volatility of bitcoin is more and more challenges in the spot market,” said Hyman.
Unlike the spot market, futures have matured this year, he explained. This means that the rolling costs that investors were worried about have shrunk.
“Advisors are interested in crypto-ETFs because they can keep them on the platforms that manage their clients,” Tom Lydon, vice president of VettaFi, told CNBC’s Bob Pisani on ‘ETF Edge’ on Monday.
Lydon sees an upside with BITI in part because of its flexibility. Investors do not need an option, margin or futures account, and it is not necessary to monitor or maintain margin levels. Also, investors do not have to worry about losing anything more than what they have invested.
“Now with the fact that we have ETFs, they are available on platforms, and [now that] We have had a big decline in the value of ETFs, more advisers are coming in, “said Lydon.
The fee for BITI is 0.95%, but Hyman explained that the financing costs and restrictions on shorting bitcoin make the ETF a less expensive way of exposure.
“It’s tough to handle this,” Hyman said. “If you were to go to the margin on a brokerage account, the borrowing costs are as high as close to 20%.”
June was bitcoin’s worst month ever, losing more than 38% of its value in the period alone. The digital currency is still under pressure while falling below $ 19,000 in the last week. It costs up to $ 18,000 to produce one bitcoin.
But the correlation between bitcoin and futures remains tight, despite investors’ concerns last year that there would be too much variation between the spot market and the futures market.
“The futures market is something the ETF industry has been a part of for a long time,” Lydon said. “You’ve got the plumbing work down, the market makers and the authorized participants are all doing what they need to do. It was up to them to make sure they performed – that these spreads are tight, and that the correlation is accurate.”
