Why This “Short Bitcoin” ETF Is Down 1.13% Despite BTC Falling 21%

The first “short Bitcoin” fund, ProShares’ Short Bitcoin Strategy ETF, is down more than 1% since launch despite BTC falling 21% from $20,700 to $17,200 over the same time period. The negative return is largely attributed to the day-to-day costs associated with BITI and its structure.

BITI in red despite Bitcoin price crash

Launched by ProShares, a premier exchange-traded fund (ETF) provider, BITI is the first fund that aims to allow investors to bet against the price of its flagship cryptocurrency. BITI is a futures-based exchange-traded fund that seeks to inversely track the performance of the S&P CME Bitcoin Futures Index.

There has been some interest in the fund because it can be quite burdensome for some investors to gain short exposure to Bitcoin through traditional methods. That’s because most centralized crypto exchanges have strict restrictions that make it challenging to use bare-bones Bitcoin. Also, financing costs can reach between 5% and 20%.

Therefore, BITI, which carries an expense ratio of 0.95%, may be a more cost-effective approach to betting against Bitcoin, especially in the short term. However, it is worth noting that BITI seeks to gain exposure through bitcoin futures contracts. Thus, it can be very complicated. The ETF seeks a return equal to -1x the return of BTC in a single day. This means that the compound effects can lead to losses if the fund is held in the long term even if the underlying asset is in decline.

Furthermore, due to its structure and day-to-day costs, the fund can become very expensive in the long run. This explains why BITI is down 1.13% since launch, even though BTC has fallen 21% from $20,700 to $17,200. Consequently, BITI has underperformed a bare BTC short by 22%.

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BITI outflows increase as BTC stabilizes

In the wake of the FTX collapse, cryptocurrency prices went into freefall. Bitcoin, which is trading above the $20,000 mark, plunged below $16,000, falling to two-year lows. The broader crypto market also lost around 20% amid the turbulence.

Meanwhile, BITI experienced massive inflows. Specifically, the fund saw a daily inflow equivalent to 2,730 BTC on November 9, pushing its short exposure to new highs. Inflows remained high over the next couple of days as the market embraced the FTX contagion, which saw BITI’s short exposure grow to the equivalent of 7,890 BTC at its November 28 peak.

However, in recent days, BITI has seen an increase in outflows as crypto prices continue to stabilize. On the last day of November, BITI experienced outflows equivalent to 860 BTC. Likewise, December 1 saw outflows worth 760 BTC, marking the third and fourth largest daily outflows from BITI since launch, according to a report by Arcane.

The report also claimed that most of the inflows since November 9 have been unprofitable as the increase in inflows coincided with the BTC bottom. It added:

“Inflows into the short ETF tend to occur amid high market fear, and we have previously noted a pattern of BITI’s AUM peaking near the BTC troughs. This may indicate that counter trading extreme BITI flows may be a promising trading strategy.”

Do you think BITI is a good investment option now? Let us know in the comments below.

About the author

Ruholamin Haqshanas is an accomplished crypto and financial journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFT). He is an active user of digital assets for money transfers.