‘ProShares BITO ETF: Competing Closely with Bitcoin’s Spot Price Amid Debate Over ‘Roll Cost”

ProShares, the leading crypto fund, has responded to speculations surrounding its Bitcoin futures-based ETF, asserting that it remains closely aligned with Bitcoin’s spot price. The ProShares Bitcoin Strategy Fund, known as BITO, has garnered significant attention as it offers investors a way to engage with Bitcoin without the complications of direct ownership.

Concerns arose about the potential for tracking errors due to trading costs associated with “rolling over” futures contracts. Rolling over involves selling off expiring contracts and buying the next set. However, Simeon Hyman, ProShares’ global investment strategist, dismisses these concerns, stating that BITO has consistently mirrored Bitcoin’s price movements since its launch. Any slight variation in their returns can be attributed to BITO’s annual fee.

The fears regarding roll costs are rooted in a market condition called “contango,” where futures contracts expiring in the distant future trade at a premium compared to those nearing expiration. Contango tends to deepen during bull markets, potentially impacting performance.

While contango widens and concerns about roll costs resurface, there is a growing demand for spot-based ETFs that invest directly in Bitcoin, eliminating the need for rollover. Giants in the industry, such as BlackRock and Invesco, have approached the SEC with applications for spot-based Bitcoin ETFs.

Despite this, Hyman remains unruffled, asserting that the interest income from BITO’s cash holdings offsets the roll costs. The recent hike in the benchmark interest rate by the Federal Reserve has driven premiums and, subsequently, the roll costs of Bitcoin futures. However, it also increases BITO’s cash balance interests, mitigating the impact of roll costs.

As the popularity of Bitcoin continues to surge, there is anticipation for spot-based ETFs. Hyman, however, argues that predicting the impact of these products on existing futures-based ones remains speculative. The success of the ProShares ETF, with $1.1 billion in assets under management and significant inflows this year, demonstrates the efficacy of a Bitcoin futures strategy within an ETF.

In a rapidly evolving financial landscape, the performance of the ProShares Bitcoin Strategy Fund carries deeper implications for the relationship between traditional finance and the crypto world. As the debate between futures-based and spot-based ETFs continues, ProShares remains firmly positioned as a pioneer in the market, offering investors unique opportunities to engage with the world’s leading cryptocurrency.