Investors Pile Into Short Bitcoin ETF Betting on Prices to Fall

Investors have piled into a recently launched bitcoin exchange-traded fund (ETF) that's designed to profit from price declines in the cryptocurrency – to the extent that the vehicle is now the second-largest bitcoin-focused ETF in the U.S. market after just a few trading days.

• The ProShares Short Bitcoin Strategy (BITI) ETF raked in the equivalent of 544.2 BTC, or $11 million at current prices, making it the second-largest exchange-traded bitcoin fund listed in Vetle Lunde, an analyst at Arcane Research, noted.
• The fund is designed to deliver the inverse of bitcoin's performance, meaning that the fund's investors book a 1% profit on their investment if BTC price falls 1% (before management fees and expenses), by holding BTC derivatives. It started trading on the New York Stock Exchange on Tuesday.
• BITI's lackluster performance on the opening day met with a shrug from analysts.
• BITI, however, saw strong inflows on Wednesday and Thursday, and had assets under management equivalent to 929 BTC, overtaking the bitcoin futures ETFs of fund providers Valkyrie and VanEck, Lunde said.
• The largest U.S.-listed bitcoin ETF is ProShares futures-based bitcoin ETF (BITO), which is far bigger than all competitors at the equivalent of 31,000 BTC in assets under management, or $651 million at current prices.
• BITI's strong performance reflects the fragile state of the cryptocurrency market as traders weigh whether it is a good time to buy BTC and how much further its price could fall.
• "The recession reality appears to be driving markets at the moment," Oanda senior market analyst Craig Erlam said. "I don't see that improving in the near future, which makes current support in bitcoin around $20,000 look vulnerable."
• On Twitter, some posters called out the launch of the short bitcoin fund as a potential bottom signal, a counterintuitive take that's not without a logical precedent: ProShares' announcement last October that it would introduce a bitcoin futures ETF came just weeks before BTC climbed to its all-time high of nearly $69,000 in November.
• John Freyermuth, a research analyst at Enigma Securities, said that it's still very early to assess the product's success. "The most risk-conscious participants are unlikely to explore these futures-based ETFs, much less one with inverse exposure to a futures index," he said.
• Many crypto-industry executives and traders have long pined for regulatory approval of a spot bitcoin ETF, which would let stock investors gain exposure to the largest crypto asset without actually owning any, because they see the structure as superior to the futures-based funds that the U.S. Securities and Exchange Commission has approved so far.
• "It's remarkable that another derivatives-based product launched before a spot-based product," Freyermuth said.