ProShares Bitcoin ETF vs BTC: Is Contango Bleed Impacting Performance?

Intricate financial chart, ProShares Bitcoin ETF vs BTC performance, contango bleed effect, Chicago Mercantile Exchange, moody boardroom setting, warm sunlight casting elongated shadows, colorful line graphs and candlesticks, animated discussions, air of uncertainty, hint of optimism, underlying desire for regulatory change.

The much-hyped ProShares’ Bitcoin Strategy ETF (BITO) has gained significant attention in the crypto world. However, recent data from K33 Research shows that this bitcoin (BTC) futures exchange-traded fund (ETF) is lagging behind BTC’s performance this year, with BITO growing by 47% and BTC by 60% over the same period. This raises questions about the appeal of using such a vehicle to capitalize on BTC’s price appreciation.

Interestingly, the underperformance can be traced back to the fund’s structure, according to K33 analyst Vetle Lunde. Unlike a conventional ETF that directly invests in and holds BTC, BITO holds BTC futures contracts on the Chicago Mercantile Exchange (CME). As a result, the fund must roll over the contracts each month as they expire, exposing it to possible losses due to the so-called “contango bleed.”

Contango, a situation where next month’s contract trades at a premium to the nearest expiry, is a common phenomenon in bull markets. With the crypto market rebounding this year, the CME futures market returned to contango, and BITO started to feel the pinch of this effect. In its first year, the fund trailed BTC’s performance by a mere 1.8%. However, this year, the performance gap over just the first five months has already hit the levels analysts predicted for the entire year.

For those aiming to maintain long exposure to BTC, it seems that BITO might not be the ideal instrument. The term structure issue, as pointed out by Lunde in his report, might push investors to look for alternative ways to make the most out of BTC’s gains.

The situation has reignited calls for the U.S. Securities and Exchange Commission (SEC) to approve the listing of exchange-traded funds that would directly invest in and hold BTC. So far, it has denied all such applications, despite industry players arguing that these would be more beneficial for consumers.

Considering the facts, the underperformance of BITO serves as a showcase of the limitations of futures-based ETFs as opposed to spot ETFs. By denying the approval of direct BTC spot ETFs, it can be argued that the SEC is ultimately harming the interests of investors. One can only wonder how long this trend of underperformance will continue and whether it will compel regulatory authorities to rethink their approach to ETF listings involving cryptocurrencies. In the meantime, crypto enthusiasts and investors alike will have to weigh the pros and cons of existing instruments like BITO and decide if they offer the desired level of exposure to the ever-evolving world of blockchain and cryptocurrencies.

Source: Coindesk

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