What Is ProShares Bitcoin Strategy ETF?

ProShares Bitcoin Strategy ETF is a BTC exchange-traded fund that seeks to provide a total return (including both price appreciation and income) by actively taking short positions in Bitcoin (BTC) futures contracts and investing directly in Bitcoin.

The first thing investors need to know is that ProShares Short Bitcoin ETF is not a BTC investment. Instead, it’s designed to deliver results that are the opposite of investing directly in Bitcoin. This fund is long-only and is expected to go up when bitcoin goes down and vice versa, making it a problematic tool for investors who want direct exposure to the cryptocurrency space.

“Bitcoin Futures” are a relatively new investment product. Still, they’ve been gaining traction recently and represent one of the key building blocks for the next generation of financial products around digital currencies. They allow investors to trade based on expectations for the future price of Bitcoin (the “Bitcoin Reference Rate”). Today, exchanges like Cboe and CME offer regulated Bitcoin futures trading.

ProShares Short Bitcoin Strategy ETF Definition

ProShares Bitcoin Strategy ETF is designed to provide targeted exposure to traders interested in taking short-term positions in bitcoin. Created by renowned ETF experts, it is actively managed and invests directly in Bitcoin futures contracts. Additionally, it may invest up to 20% of its total assets (as measured at the end of each quarter) in certain exchange-traded or OTC derivatives that provide exposure to Bitcoin. It seeks a correlation of zero with the benchmark for its daily investment objective.

ProShares Bitcoin Strategy ETF (the Fund) seeks to provide a total return that closely corresponds to the price and yield performance of the target benchmark, Bitcoin Futures Contracts (the Fund’s benchmark). The benchmark is designed to track the performance of lead month Bitcoin Futures Contracts listed and traded on either BitMEX or OKCoin. ProShares Bitcoin Strategy ETF is benchmarked to the prices of other bitcoin derivatives

How Does the ProShares Short Bitcoin ETF Work?

The ProShares Short Bitcoin ETF (NYSE Arca: SHORT) is designed to provide investors with short exposure to the Bitcoin market. It seeks results that generally correspond (before fees and expenses) to the inverse of the daily performance of the target benchmark, Bitcoin Futures.

This fund is part of a family of funds offering triple-leveraged or groups of stocks with short exposure to various indices tied together by market cap, financial characteristics, or theme. The ProShares Bitcoin/Blockchain Strategy ETF (the Fund) provides “long” investment exposure to an actively managed portfolio of global companies involved in the blockchain ecosystem. This product intends to trade in tandem with its respective long strategy counterpart.

ProShares Short Bitcoin ETF and BTC Price

There is a new Bitcoin ETF trading under the ticker symbol ‘XBTG,’ and it promises to outperform its peers, given that it is a short Bitcoin fund. Most of these funds are long-only funds, but this one has been introduced as a short fund. The question is, what will happen with this new instrument?

The problem with most of these funds is that they have not been able to keep up with the price growth of Bitcoin, only two being exceptions: the ProShares and the Grayscale Bitcoin Investment Trust. Some ETFs invest in futures that track specific indices or commodities, and ProShares is one of these. It invests in Bitcoin futures, but it also invests in inverse futures – basically a short fund for Bitcoins. The Grayscale Bitcoin Investment Trust has a similar investment profile – this is a more traditional investment vehicle that invests in actual bitcoins and not synthetic products like the ProShares ETF.

Both of those ETFs have been outperforming everything else on offer from US-listed funds by quite a large margin. Of course, they do not compete with each other directly due to their different investment profiles, one of them being long and another being short, but there is no denying that they have both outperformed peer-funds with similar investment profiles, just as we would expect to happen.

The new ProShares fund is also offering a daily 2x long leveraged fund, but no short Bitcoin ETF has been introduced yet. Both of the existing funds are long-only.

Advantages of ProShares Short Bitcoin ETF

Firstly, Bitcoin ETF is trading on an exchange just like shares, bonds, and commodities. This helps increase demand as investors can buy into the fund anytime instead of waiting until an individual sale is finalized by 2 parties outside the stock market infrastructure. As more investors flock towards cryptocurrency, cryptocurrencies need to be available on exchanges for easier trade, so that there is no flood of newly minted coins, which pushes down prices due to sudden influx in supply or no one wanting to sell since most people have bought into coin hoping that their investment would appreciate. An increase in demand due to ETF will increase prices, which will benefit early adopters of the coin.

Another advantage of ProShares Short Bitcoin ETF is transparency. Since it is traded on exchanges, investors have access to information about what is happening within the fund, which makes it easier to track performance. Since Bitcoin is a known entity in the investment community, it is not difficult to track its performance against other assets or indexes. This would help financial advisors guide their clients for better decision-making. Since there are only 21 million Bitcoins available, ETFs are considered one of the most transparent ways for investors to gain access to BTC without owning any.

Along with being transparent, a Bitcoin ETF helps reduce the risk of hacking and security breaches at the exchange. This means that investors get access to insurance for their investments, which makes them safer than investing in individual coins.

Further, increasing demand due to an easy way to get exposure through a BTC ETF leads to price appreciation. This is a significant advantage of a BTC ETF. It is also an easier way to short sell the asset since investors can easily go short on the ETF just as they can with any other ETF. Thus, there is a better balance between buyers and sellers.

In case of an economic crisis where investment portfolios are sold off, investors could just sell their shares instead of going through a financial advisor. Further, an ETF would be traded on an exchange allowing trades to happen 24/7 regardless of which day it is like any other stock. Since cryptocurrency prices tend to fluctuate more than most traditional assets, this facility might come in handy.

Since an ETF is a lot more popular than mutual funds, it provides easier access for new entrants into the cryptocurrency world, thus increasing the demand and price of Bitcoin through network effects. In turn, an increase in demand will also increase BTC mining, thus making the network more robust.

Finally, an ETF would be more closely regulated than mutual funds, futures, or other investment vehicles since it is traded on exchanges with certain requirements to prevent price manipulation and insider trading.

Disadvantages of ProShares Bitcoin ETF

ProShares Bitcoin ETF is a bear commodity for short, daily performance. To achieve this purpose, Proshares uses the logic of borrowing and subsequent selling of Bitcoin in the open market to buy back at a lower price.

The problem with this approach is that it involves many risks on spot markets, especially when speculators are in a foul mood about making financial decisions in general. During such market conditions, many traders end up closing their positions all at once, which has an adverse effect on liquidity, causing even more volatile moves, e.g., major movements downwards in prices without any basis or explanation behind them.

In addition, Bitcoin prices can be easily manipulated by those who wish to impact either the short, or long-term market price. This is because BTC has a relatively small market capitalization, and many assets tend to move together with BTC as per their movements in general. If an entity wants to cause a significant price movement on BTC, they could easily do so, and short ETFs pull it off without owning the underlying asset.

Conclusion

ProShares Bitcoin Strategy ETF (NYSEARCA: BXDB) seeks to provide investment results that, before fees and expenses, generally correspond to the performance of lead month Bitcoin futures contracts less a pro-rata amount the Fund’s expenses. The Fund employs an indexing investment approach designed to track the price performance of lead month bitcoin futures contracts. A lead month contract, or front-month contract, expires in the current month and whose trade volume places it at or near the front of the line or queue among all contracts for that commodity traded on that exchange during that cycle.