ProShares will today launch the first short bitcoin exchange traded product in the US, providing a fresh avenue for investors to profit from any continued sell-off of the digital token.
ProShares’ move comes as the price of bitcoin has plummeted nearly 70 per cent to $20,500 from the all-time high it hit in November.
The move is also in sharp contrast to the heady days of October 2021 when ProShares was the first to the US market with a long bitcoin futures ETF. The ProShares Bitcoin Strategy ETF (BITO) surged past $1bn of assets within two days in one of the hottest ETF launches of all time.
The plunge in bitcoin is just one strand in a broader bloodbath in cryptocurrencies and other digital assets such as non-fungible tokens.
The combined global assets under management of crypto exchange traded products have plunged 54 per cent from a high of $19.5bn in November to $8.9bn, according to data from TrackInsight.
“We are optimistic that there will be interest in the fund, particularly given what has happened in the market in the past few months, and particularly the past week,” said Michael Sapir, chief executive of ProShares, which has $62bn under management.
Nate Geraci, president of The ETF Store, sad he expected “a rather robust market” for short bitcoin ETFs “as they offer a convenient and relatively cost-effective way to short the price of bitcoin”.
“I have no doubt they’ll find an audience, particularly given the current crypto market environment. There is certainly no dearth of bitcoin permabears out there who strongly believe this thing is going to zero,” he added.
Like BITO, the ProShares Short Bitcoin Strategy ETF (BITI) will trade in futures contracts listed on the Chicago Mercantile Exchange, rather than the “physical” currency itself.
As with all inverse ETFs, it is designed to provide inverse exposure to the daily return of bitcoin, minus fees and costs, and is likely to diverge from this if held for longer periods.
As such it will have a similar structure to Horizon ETFs’ C$44mn ($34mn) BetaPro Inverse Bitcoin ETF (BITI), which launched on the Toronto stock exchange in April 2021 and has delivered returns of 142 per cent from its November lows.
The only other inverse ETP is the Europe-listed $21.6mn 21Shares Short Bitcoin ETP (SBTC), which generates short exposure by borrowing bitcoin and selling it on an execution platform. It has returned 127 per cent since November.
With a management fee of 0.95 per cent, on top of the “roll costs” inherent in futures trading, ProShares’ ETF will be cheaper than either of the existing products. A sister mutual fund will also be launched.
Sapir said US investors who believed the bitcoin price was likely to fall currently have “very limited and complicated ways of obtaining short exposure”.
Some cryptocurrency exchanges offer short exposures, but that involves opening an account, establishing margin and potentially facing high charges. Another option would be for investors to trade in futures contracts directly.
“Being able to tap into the benefits of an ETF, the liquidity and ease of use, would be an advantage compared to trying to short bitcoin directly,” said Todd Rosenbluth, head of research at VettaFi.
ProShares’ lead may soon be followed by “alternative” investments” group AXS Investments, which filed to launch a Short Bitcoin Strategy ETF (SBCO) in early April.
AXS said it was in a “quiet period” around the filing and was unable to discuss it.
Direxion, which specialises in leveraged and inverse ETFs, alongside thematic ones, has also filed for a Bitcoin Strategy Bear ETF that could short swaps, futures and long bitcoin ETFs such as BITO. Direxion declined to comment.
Despite the carnage in the crypto market, ETP investors do not appear ready to throw in the towel. Net inflows to the sector have been positive in each of the past four weeks, totalling $507mn according to TrackInsight.
“Incredible but true. Crypto ETPs are still drawing in cash this year even though their year-to-date return hit minus 46 per cent on average,” said Philippe Malaise, founder owner of TrackInsight.
“A majority of investors see the current drawdown like a golden opportunity to build a position or increase their current exposure to reduce their average cost,” Malaise added.