Bitcoin’s dominant showing in 2023 is leaving exchange-traded fund investors divided on what’s next for the world’s biggest cryptocurrency.
The $149 million ProShares Short Bitcoin Strategy ETF (ticker BITI), which tracks the inverse performance of Bitcoin, has absorbed more than $118 million so far this year despite a 47% drawdown. That’s a bigger haul than its bullish — and much bigger — sibling, the $1 billion ProShares Bitcoin Strategy ETF (BITO), which has attracted $89 million amid a 60% surge this year.
The flow dynamic across the two ProShares products highlights the apprehension around Bitcoin’s eye-watering rally, having surged 70% so far this year. Turbocharged by optimism that the Federal Reserve’s tightening cycle is nearing its end, combined with the recent turmoil in the global banking sector, it has easily outperformed every other asset class in the first quarter.
Still, given Bitcoin’s speculative nature as well as its lack of traditional fundamentals and valuation metrics, investors seem unsure which way the coin may move next.
“It reflects uncertainty when you have roughly half the market participants go long and half of them go short,” said Chris Gaffney, president of world markets at TIAA Bank. “It shows that nobody really knows where we’re going.” That uncertainty will likely lead to more volatility, he added.
Bitcoin’s year-to-date surge following 2022’s bruising 64% plunge has renewed interest from ETF issuers. At least three firms filed applications to launch leveraged Bitcoin futures ETFs over the past several weeks — a product structure that doesn’t exist yet in US markets.
However, Bitcoin’s recent rally hasn’t been met with meaningful inflows across the board. For instance, the $10 million Valkyrie Bitcoin Miners ETF (WGMI), so far this year’s best-performing non-leveraged fund with a 127% gain, has raked in just $5.7 million so far this year.
Meanwhile, recent buzz around the second-biggest cryptocurrency, Ether, could help explain why investors are leaning into BITI. Though both Bitcoin and Ether have surged this year, the latter has lagged the original cryptocurrency by roughly 10 percentage points.
Yet, some investors now see it as playing catch-up with Bitcoin, especially after Ethereum’s highly anticipated Shanghai upgrade, which they had feared would lead to the Ether token selling off. But such a decline didn’t materialize in the days following the update.
The broader rally across cryptocurrencies this year, partly driven by investors favoring digital assets amid the banking turmoil in the US and Europe, has also led some to say that Bitcoin could act as a safe haven in such an environment, though many have refuted that stance.
“We are seeing accumulation from those looking for an ‘insurance’ asset and those who believe the long-term upside more than compensates the downside risk, which explains the inflows into BITO,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.
“Those taking short BTC bets could be counting on portfolio rotation out of BTC and into ETH, especially since BTC now has attractive gains to lock in,” she said.
Read more articles by Katie Greifeld, Vildana Hajric
