How ETF investors can bet on the crypto crash

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Digital currency investors have been under pressure this year due to a range of factors, from inflation and recession fears to a liquidity crunch among top crypto companies. Bitcoin’s steady freefall has seen the flagship coin fall nearly 70% from its all-time high of last November.

For investors considering betting against bitcoin, ProShares launched BITI, the first U.S. bitcoin-linked short ETF, on June 21.

“It’s the companion to BITO, the bitcoin long strategy ETF,” Simeon Hyman, global investment strategist at ProShares, told CNBC’s “ETF Edge” on Monday. “And we wanted to be able to give investors short exposure.”

BITI is performing inversely (-1x) to the S&P CME Bitcoin Futures Index, providing an opportunity to potentially profit from its decline. The ETF is linked to bitcoin futures and is rebalanced daily.

“What we’ve seen over the past few months with bitcoin’s volatility is more and more challenges in the spot market,” Hyman said.

Unlike the spot market, futures have matured this year, he explained. That means the rolling costs that investors worry about have come down.

“Advisors are interested in crypto ETFs because they can hold them on the platforms that manage their clients,” VettaFi vice president Tom Lydon told CNBC’s Bob Pisani on “ETF Edge” on Monday.

Lydon sees an advantage with BITI in part because of its flexibility. Investors do not need an options, margin or futures account, and there is no need to monitor or maintain margin levels. Moreover, investors do not have to worry about losing more than they have invested.

“Now that we have ETFs, they are available on platforms, and [now that] we’ve had a big drop in the value of ETFs, more advisors are coming in,” Lydon said.

The fee for BITI is 0.95%, but Hyman explained that funding costs and restrictions on bitcoin short selling make the ETF a cheaper route to exposure.

“It’s hard to pull it off,” Hyman said. “If you were to use margin in a brokerage account, borrowing costs would be almost 20 percent.”

June was Bitcoin’s worst month on record, losing over 38% of its value in the period alone. The digital currency remains under pressure while falling below $19,000 last week. It costs up to $18,000 to produce one bitcoin.

But the correlation between bitcoin and futures contracts remains close, despite investor concerns last year that there was too much variation between the spot market and the futures market.

“The futures market is something the ETF industry has been a part of for a long time,” Lydon said. “You have the plumbing, market makers and authorized participants all doing what they have to do. It was up to them to make sure they were performing – that those spreads are tight and the correlation is accurate.”


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