ProShares Exec: Bitcoin Futures ETF a ‘real, robust and first-class solution’

Blockworks contacted Simeon Hyman, head of ProShares’ investment strategy group, to talk about the company’s bitcoin-related products.

The company launched the first bitcoin futures ETF – ProShares Bitcoin Strategy ETF (BITO) – in October last year and last month launched its Short Bitcoin Strategy ETF (BITI) – the first such product in the US to short bitcoin via futures contracts.

“This ETF is not launching at exactly the right time, given that bitcoin has already experienced significant carnage,” said Nate Geraci, president of The ETF Store, about ProShares Short Bitcoin Strategy (BITI) last month.

But ProShares reported that BITI traded more than 870,000 shares, or $ 35 million in value, on June 22, the second trading day. Its weekly average volume between July 11 and July 15 was 717,000 shares, or $ 29 million.

Meanwhile, BITO had an average volume of 7,268,000 shares, or $ 90 million, last week. The change in net asset value during this period decreased by 2.7%, compared to bitcoin, which decreased by 3.1%.

BITI and BITO had assets under management of $ 81 million and $ 688 million, respectively, as of July 15.

Although investment products for long-term digital assets then flowed in at almost $ 3 million last week, short-term products, such as BITI, had an inflow of about $ 15 million, according to a Monday report from CoinShares.

The price of Bitcoin was around 23,400 dollars on Tuesday at 14 ET, up 23% in the last 30 days, but down about 66% from the highest record in November last year.

Continue reading for excerpts from Blockworks’ interview with Hyman:

Block works: ProShares ended up launching BITI after bitcoin’s price had already plummeted. Why did you choose to launch the product when you did?

Hyman: I do not think you should take anything from the timing other than that we wanted to make sure we got a solution out to the investors. In our perspective, our main goal was to see the opportunity to offer a solution that is not out there.

Even the S&P 500, which is probably the largest source of value creation in the history of financial markets, goes down sometimes, so people need tools. It is not so easy to short bitcoin, and although you can do it with a margin in a brokerage account, the borrowing costs can be 5% to 20%.

So to be able to put this together for 95 basis points, in an ETF, you can buy it in your broker account, we just wanted to get it done, and we are the only ones who have provided an ETF solution on both sides of the trade.

Block works: What types of investors do you target with BITO and BITI?

Hyman: You can not always see who uses the tools, but we think that it is both individuals and institutions, and we think that it is both people who have shorter and longer term.

If you think about BITO, our daily volume has now darkened GBTC, so it’s the most traded floating thing out there. As I always say to people, even if your holding period is long, the day you go in and the day you come out, even if these days are a year apart, you will have the robust trading environment. So we think there are a number of constituencies out there.

Block works: What has the company seen when it comes to investor demand for BITO and BITI in the midst of the current crypto downturn?

Hyman: The reference point for being the guy with the highest volume out there at BITO is proof of the robustness of its continued usefulness.

It was $ 1 billion the first week, which was pretty cool … but we’re still $ 600 million or $ 700 million on BITO and we’re approaching $ 100 million on BITI, so it’s also picked up speed.

Block works: What are your thoughts on the spot bitcoin ETF proposal that the SEC has rejected? How do you view such a product compared to BITO?

Hyman: The last many months in the marketplace – and let’s just limit it to bitcoin for a minute – have really proven the effectiveness of the futures-based approach.

It is interesting when you look at what has happened only in the spot market and the lending market, there is obviously a headline every day.

While several challenges appear to be emerging in the spot market, the futures market is maturing quite well. If you look at BITO’s performance year to date, there are basically no roll costs, and it’s in line with the principles of financial first – there is no storage cost. So the regular, mature liquidity and arbitrage market should bring it down to basically the Fed Funds rate according to first principles, and it has happened.

It is important to have the well-functioning and mature futures market with counterparty risk controlling everything that happens in the futures market and the belt and harnesses by being a [1940 Act] The ETF is doing very well there.

Block works: What are your thoughts on Grayscale’s lawsuit against the SEC? How do you see it unfolding?

Hyman: The answer is who knows, but again I think the key element as an investor today is that I am super proud that BITO now trades more daily volume than GBTC, and you have got your hair on the huge discount on that trust.

If I’m an investor … I would be more interested in OK, I have this thing over there that has this big discount attached to it, or I have this nice ETF that tracks very well every day and over time that can be very well be and seems to be a more robust option for investing in bitcoin today.

I do not know how loud [the lawsuit] is on [ProShares’] radar screen. This is not something we talk about.

Block works: After taking the lead on bitcoin futures ETFs and a brief strategy for the asset, what other products can ProShares think of launching?

Hyman: We will constantly look for opportunities for other solutions, but there is nothing specific I can point to.

Certainly as we stand today, the futures-based ETF is not a second-class citizen at all. In fact, it is to a large extent a first-class citizen with all these challenges in the spot market, which makes a futures-based ETF a very important solution and not a second-order one at all.

That said, the spot market may also mature. It is part of our R&D efforts; If there is a day out there somewhere in the future where there are other possibilities, we will consider them. But I think the most important data point today is that the futures-based ETF is a real, robust and first-class solution.

This interview was edited for clarity and brevity.

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