ETF That Bets Against Bitcoin to Launch

Financial firm ProShares is ready to roll out the first U.S.-listed short bitcoin futures exchange-traded fund this week, allowing investors to effectively bet against the largest cryptocurrency after its price tumbled below $20,000 over the weekend.

The Bethesda, Md., firm’s fund, the

Short Bitcoin Strategy ETF,

will trade on the New York Stock Exchange and go by the ticker BITI.

The fund launch comes as a brutal selloff in cryptocurrencies has shown no signs of abating. Bitcoin has plunged 56% this year, while ethereum has plummeted 69%, according to CoinDesk data. The total market capitalization of all digital currencies stood at $857 billion on Sunday, well below its peak of nearly $3 trillion last November. As the Federal Reserve has been unwinding its easy-money policies to fight inflation, investors have been dumping more speculative assets.

Last October, ProShares launched an ETF for bullish bitcoin investors—the ProShares Bitcoin Strategy ETF, the first U.S.-listed bitcoin ETF. The fund trades under the ticker BITO and holds bitcoin futures contracts rather than the cryptocurrency itself. It raised more than $1 billion in assets from investors in two days. 

Bitcoin surged to its record of $67,802 in November shortly after the fund started trading. The fund’s assets have fallen drastically. As of Friday, the futures fund, which holds $643 million in assets, has declined 56% this year, according to Morningstar data.

The ETF came to market after a yearslong effort by asset managers to create funds that hold actual bitcoins. The Securities and Exchange Commission has rejected applications for ETFs that invest directly in bitcoins because of concerns that bitcoin trading isn’t transparent enough to protect investors from fraud and market manipulation. 

SEC Chairman Gary Gensler has expressed a preference for ETFs that hold bitcoin futures that trade on regulated venues such as the Chicago Mercantile Exchange. But a drawback of futures-based ETFs is that the futures market can sometimes underperform the underlying assets they are supposed to track. Investors and analysts have also raised concerns about the added cost of rolling futures contracts from one month to the next.

Nate Geraci,

president of investment-advisory firm ETF Store, said the short bitcoin futures ETFs are designed to track the opposite performance of the S&P CME Bitcoin Futures Index for a single day only, which means investors will experience tracking error over time. When the index falls, the value of the ETF rises—and vice versa.

“While the long only bitcoin futures ETFs have done an admirable job of tracking the spot price of bitcoin, the bottom line is that futures-based products aren’t a perfect substitute,” Mr. Geraci said. “Inverse products with a daily reset will only magnify that fact.”

Michael Sapir,

chief executive of ProShares, said the disparity in performance between bitcoin and bitcoin futures has been minimal this year as the futures market has matured. 

“Of course, there can’t be any guarantees,” he said, “but based on how the futures market has been tracking the spot market, we are optimistic that the inverse product will track well as well.”

ProShares manages more than $65 billion in assets and is among several asset managers that have been jockeying to launch the first ETF that bets against bitcoin futures. Direxion Funds and AXS Investments filed for similar products in April. 

Write to Vicky Ge Huang at vicky.huang@wsj.com


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