ProShares has introduced the first US-listed ETF providing inverse exposure to bitcoin, allowing investors to bet against the world’s largest cryptocurrency.
Bitcoin has lost more than 70% of its value since its peak in November 2021.
The ProShares Short Bitcoin Strategy ETF (BITI US) has been listed on NYSE Arca with an expense ratio of 0.95%.
The launch comes amid a brutal sell-off in digital assets which some have termed the “crypto winter”.
The price of one bitcoin recently dipped below $20,000, representing a decline of more than 71% from its high of $67,800 in November 2021.
Many market commentators believe that, despite the significant fall in value, bitcoin’s fortunes are unlikely to turn around in the short term. Investors seem intent on continuing to dump speculative assets as inflation soars, central banks embark on aggressive monetary tightening, and expectations for a global recession rise sharply.
Michael L. Sapir, CEO of ProShares, said: “As recent times have shown, bitcoin can drop in value. BITI affords investors who believe that the price of bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings.”
The fund is another industry-first for ProShares which made history in October 2021 by introducing the first US-listed long bitcoin ETF. The ProShares Bitcoin Strategy ETF (BITO US) quickly found an audience, reaching the $1 billion assets under management milestone in just two days.
Both ETFs gain their exposure to bitcoin by way of futures contracts. The newest launch, BITI, delivers the inverse (-100%) daily return of the CME Bitcoin Futures Contracts Index. The index tracks the value of cash-settled, front-month bitcoin futures linked to the CME CF Bitcoin Reference Rate which aggregates the price of bitcoin across multiple eligible cryptocurrency exchanges.
While many issuers have sought to launch directly replicating bitcoin ETFs, the SEC has consistently refused to greenlight these applications, citing concerns regarding validating the ownership of these funds’ underlying tokens.
This is not to say that futures-based bitcoin ETFs are without issues, however. Roll costs, as well as the potential for premium and discounts to NAV to emerge due to price limits imposed by the Chicago Mercantile Exchange on its futures contracts, may create a less satisfying tracking experience for investors.