Take note, amateur Peter Schiffs.
If you agree with Euro Pacific Capital’s infamous Bitcoin perma-bear and expect the value of the cryptocurrency to eventually trend toward zero, there’s a new product on the market to cater to that very outcome.
The new ProShares Short Bitcoin Strategy exchange traded fund (ticker: BITI), available through traditional brokerage accounts, offers a return inversely related to the daily performance of the S&P CME Bitcoin Futures Index on the Chicago Mercantile Exchange.
“BITI affords investors who believe that the price of Bitcoin will drop with an opportunity to potentially profit or to hedge their cryptocurrency holdings,“ ProShares CEO Michael Sapir said in a statement on Monday.
Trading in the instrument, approved by the Securities and Exchange Commission (SEC), began on Tuesday.
Futures vs. Spot ETFs
Since futures ETFs are logically based on speculative futures contracts, a form of derivative, they can perform quite differently than spot rates that typically entail physical delivery of a good.
A famous example of the risks investors can face was the April 2020 case of the Unites States Oil Fund (USO). The largest crude oil futures ETF, which tracked the price of West Texas Intermediate, burned investors when forward contracts rolling over from one month to the next caused unexpected losses.
The news of the new short Bitcoin ETF had some maximalists (or “maxis”) seething, given that long-spot Bitcoin ETFs like those proposed by Grayscale Investments and ARK Invest’s Cathie Wood have yet to be approved.
“Approving a derivatives-based short Bitcoin futures ETF before approving a long spot Bitcoin ETF can’t possibly be customer protection focused,” wrote Gabor Gurbacs, director of digital strategy at fund management firm VanEck.
Grayscale Investments CEO Michael Sonnenshein welcomed the new short futures ETF as a sign of maturity in the asset class, however: “I firmly believe that the approval of each and every Bitcoin-linked investment product demonstrates the SEC’s increased comfort with [Bitcoin] and crypto, more broadly,” he tweeted.
Does a short ETF mark Bitcoin’s bottom?
Fans of the digital asset argue Bitcoin is the only digital currency around that has successfully proven itself over multiple market cycles since its launch in 2009. Its security and decentralization are second to none, meaning it is almost impossible to corrupt the network for personal gains.
There’s just one catch that even Bitcoin maxis readily admit: It cannot be scaled—at least not via its base coding. Only through the addition of a so-called “Layer 2 protocol” known as Lightning can Bitcoiners boost the numbers of transactions to approach those of far faster competitors like the proof-of-stake blockchain Solana.
Critics meanwhile point to Bitcoin’s voracious appetite for electricity. Estimates suggest mining it sucks up the same amount of power as entire developed countries. Elon Musk cited a Fortune article on its CO2 footprint as justification for withdrawing Tesla’s payment support for it.
And while a perma-bear like Schiff shares the skepticism toward the U.S. dollar and the libertarian views of many Bitcoin holders, he believes crypto has no inherent value beyond that which the community assigns to it.
This fundamentally differentiates it from more traditional hedges that serve as a store of value for when central banks actively debase their currency through quantitative easing. Gold, for example, has numerous use cases, whether in jewelry or industrial applications, that will always ensure there is demand.
Caution is advised, however, for those who may be tempted by a Bitcoin short ETF.
The launch of thematic ETFs can often coincide with market peaks in sentiment for those specific sectors.
Just look at ProShares. In October of last year, it launched its first futures ETF that went long on Bitcoin, called BITO. In just two days, it attracted more than $1 billion in assets, making it the most successful ETF launch in the history of the industry, according to the company. The following month Bitcoin hit its all-time high at around $69,000, and it has lost 70% of its value ever since.
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