Crypto bears who believe the digital currency disaster isn’t over have a new resource to bet on further declines.
The Pro Shares Short Bitcoin Tactic ETF (ticker BITI) goes public on Tuesday, becoming the United States’ first invertible exchange-traded fund related to the biggest crypto asset. It aims at providing a comparatively cheap and simple opportunity to make money from any further setbacks by overturning the results of a Bitcoin futures option.
BITI arrives at a time when the digital currency atmosphere is in disarray, with a digital-asset downturn fueled by surging inflation gathering steam in the wake of the Federal Reserve’s massive rate hike last week. It’s a downward slide that even has long-term investors trying to sell, and Bitcoin is down roughly 70% since reaching its high point in November of last year.
This raises the possibility that the new investment venture missed the majority of the pullback. ProShares believes that making it simpler to short Bitcoin might very well motivate more traders to express their dissatisfaction with the cryptocurrency.
There is a belief that many traders who have a downward perception of Bitcoin and crypto in a broad sense have not acted on their perspective because it is too expensive or difficult, according to Michael Sapir, the ProShares CEO. These investors are now able to acquire short options to Bitcoin in the same way that they would buy an ETF in a conventional trading account.
Last year in October, ProShares launched the very first US ETF related to Bitcoin, the Bitcoin Scheme ETF (BITO). This had one of the most effective launches in ETF antiquity, but its debut coincided with the peak of the virtual rise.
BITI has the same expense ratio as BITO, which is 0.95 percent. While that is higher than the majority of actively managed mutual funds, the pinpoint lending rate for BITO shares — one estimate of the price of shorting the reserve — is currently near 13.9 percent, according to S3 Partners statistics.
The thing is that the new market, as with most inverse ETFs, is only intended for short-term use. It reverts the inverted performance of its underlying asset for one day at a time, which means it resets each day. Investors who hold the ETF for a lengthier period risk underperformance due to the ongoing expenses.
The ProShares commodity is the very first downward Bitcoin ETF to hit the market, with Direxion and AXS following suit. Following the release of BITO, Direxion filed for a similar fund in October but withdrew the request at the suggestion of US regulators.
A Deeper Thought
Many investors still remember the craze of the housing crash that occurred back in 2008. The crash of this market shocked the entire world and caused a global recession. This was because the housing market was seen as something so secure that it could not possibly fail. However, some investors spotted the inconsistencies within the market and decided to short it.
These investors made millions of dollars off of this plan, and in doing so, highlighted the discrepancies within what was thought to be a market that was immune to failure. Crypto, on the other hand, is a market that has already shown how volatile it can be. With the recent bearish turn of the crypto market, investors are starting to see the opportunity to short it.
Although what some traders believe to be the majority of the downward spiral has already ended, having the option to now short BTC provides investors with the ability to spot discrepancies within Bitcoin and other crypto coins and bet against them.
The effect that this could have on Bitcoin is not yet known; however, it should be interesting to see just how the price of the world’s most popular cryptocurrency reacts to the introduction of such a fund.
The Bottom Line
Most conventional ETFs allow you to short them and bet against the price rise. Bitcoin now has this same option, and this could possibly cause the volatile nature of the digital asset to act in a more traditional sense. Whether or not this proves to be the case remains unknown; however, this is an interesting development in the crypto space.
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