ETF Prime Special Edition: ProShares Launches First U.S. Bitcoin Strategy ETF


On this special edition episode of ETF Prime, host Nate Geraci speaks with Simeon Hyman, global investment strategist at ProShares, on the launch of their cryptocurrency ETF, the ProShares Bitcoin Strategy ETF (BITO).

The launch is a historic one for the crypto space; BITO is the first cryptocurrency-related ETF to be approved by the SEC after nearly a decade of effort by various issuers. Previous ETFs have all focused on the crypto markets as a whole, but BITO invests in the arena of cryptocurrency solely via the futures market.

BITO does not invest directly in bitcoin but instead in CME-traded bitcoin futures, and it’s what Hyman describes as “a gamechanger.”

“It’s not unlike the launch of the first gold ETF, the first bond ETF; these are important advances in the ability for investors to conveniently get access to lots of different ways to support their investment objectives,” Hyman explains.

Hyman has been with ProShares since 2013, the year that the very first bitcoin ETF was filed with the SEC. ProShares joined the crypto ETF filing chain in 2017 when they filed for a futures-based ETF shortly after the introduction of bitcoin futures to the markets.

He sees this particular filing within the futures space as one that has inherent value in itself, not as a secondary alternative to bitcoin exposure.

“First of all, you have the regulation in the futures market, and on top of that, you have the regulation in the Securities Act of 1940 on the ETF itself, so it’s not just convenience, it’s the robustness,” Hyman says, going on to discuss that there is a school of thought that believes the futures markets are actually a better place for price discovery than spot markets.

On August 3rd of this year, SEC Chair Gary Gensler made comments indicating that a futures-based bitcoin ETF would be looked upon favorably by the Commission; on August 4th, ProShares entered their filing for one, which then launched today. Hyman explains that ProShares has had an interest in the crypto and futures space for a long time and had been watching the evolution of the bitcoin markets, bitcoin futures markets, and the regulatory body’s leanings, waiting for favorable signs.

Hyman believes that the route through the futures market and the role that the CFTC and its clearinghouse play is a major part of why the SEC has finally allowed a cryptocurrency-related ETF to launch.

“I think people often underestimate the complexity of getting that spot exposure to bitcoin because there are multiple exchanges and they can vary several hundred basis points,” Hyman says. Having to deal with wallets, cold keys, warm keys, and an exchange is an additional barrier for some investors, and so this ETF provides an easier solution via the futures market.

BITO is an actively managed ETF that holds CME bitcoin futures, and it focuses on front-month contracts, which are considered to be the most liquid.

ProShares launched a similar bitcoin futures-based mutual fund in July of this year, the Bitcoin Strategy ProFund (BTCFX). Thus far, BTCFX has had a bitcoin reference rate that was up 51% while the mutual fund itself was up 52%. The fund incurs costs when moving from one completed contract to the next, called the “roll” in futures space; in the month of September, it was twenty basis points, which is 2.5% annualized, a cost that is much less than any other type of bitcoin exposure, Hyman explains.

BITO has part of its investments going into a Cayman Islands wholly owned subsidiary, a common practice to circumvent the dreaded K-1 tax for investors.

Speaking on the importance of the day, Hyman explains, “we do see innovation as really at the heart of what we do; it’s part of our DNA to bring solutions that are distinct and differentiate to the market, but this is a big one.”

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