ProShares, the issuer of the first U.S. bitcoin futures-linked exchange-traded fund (ETF), has reported that its product has closely mimicked bitcoin’s spot-price performance since day one, despite concerns that costs associated with trading of the derivatives would lead to tracking errors. The ETF, which trades under the ticker BITO on the New York Stock Exchange, allows investors to gain exposure to bitcoin (BTC) without having to own the cryptocurrency. It invests in regulated and cash-settled bitcoin futures listed on the Chicago Mercantile Exchange (CME).
Concerns about the roll costs are misguided; BITO has closely tracked bitcoin’s price since inception, said Simeon Hyman, global investment strategist at ProShares. Since its inception (through 7/18), BITO has returned -54.5% compared to -51.5% for bitcoin. And over half of that modest difference is BITO’s fee of 95bps per annum.
Hyman explained that BITO continues to closely track the spot price as the fund’s interest income from cash holdings compensates for the roll costs, which are closely tied to the level of interest rates in the U.S. economy. The Fed’s raising of the benchmark interest rate by 500 basis points since March 2022 has been a key driver of those premiums, and consequently the roll costs of a bitcoin futures strategy, Hyman said. BITO earns interest on its cash balances which are driven by those same term-equivalent interest rates, which offset the roll costs. The result is close tracking to the price movements of spot bitcoin.
BITO has paid dividends six times this year, and as of July 18, the ProShares ETF had $1.1 billion in assets under management. Hyman noted that BITO’s track record of performance and flows are a testament to the effectiveness of a bitcoin futures strategy within an ETF and investor interest.