Five months in, bitcoin ETFs are down big but showing signs of staying power

Published Thu, Mar 24 20223:07 PM EDTUpdated Thu, Mar 24 20227:09 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The exchange traded funds that track bitcoin futures have been pummeled in their first few months of existence, but there may be reasons to be optimistic about what's ahead. The bitcoin futures ETFs launched in the fourth quarter of 2021, right around the high-water mark for the crypto market. The price of bitcoin is down more than 30% since the launch of the ProShares Bitcoin Strategy ETF on Oct. 19, and the bitcoin futures ETFs have predictably suffered. The three funds have fallen worse than spot bitcoin since inception, according to data from Coin Metrics, but not by much. Since the end of November, when all three were operational, each fund has dropped more than 27%, compared with a 26.4% decline for spot bitcoin. Source: FactSet, Coin Metrics Because the ETFs are allowed only to hold bitcoin futures contracts instead of the cryptocurrency itself, the funds are not a true way to track bitcoin. The futures funds can also be hit with transaction costs and pay market premiums that come from rolling one month's futures contracts over to the next. Aniket Ullal, head of ETF data and analytics at CFRA, said he was positively surprised by how well the funds have tracked spot bitcoin and that the early results suggest that the funds should be viable long term. "I think there's certainly value in the products, especially given how they've tracked the spot. I think eventually if we see a spot ETF, there's going to be a lot more interest in that. … but structurally, given how these products have performed, I don't see an issue," Ullal said. He said that one potential reason that the funds have only slightly lagged spot bitcoin is that the sharp pullback in the crypto market also dragged down expectations, helping to shrink the premium between futures contracts. However, Simeon Hyman, head of investment strategy at ProShares, said that the roll costs for futures contracts have declined in recent months because the futures market itself is gaining more traction and operating well. "The decline in the spot market doesn't have any specific implic