ProShares Bitcoin strategy ETF BITO outperforms BTC price by 13.8% this year: K33 Research

According to the report by digital asset research firm K33 Research, the ProShares Bitcoin (BTC) futures exchange-traded fund (ETF) has progressively underperformed BTC this year, reducing its appeal as a vehicle for betting on BTC’s price rise .

The price of ProShares’ Bitcoin Strategy ETF (BITO) is up 47% year-to-date, trailing BTC’s 60% surge over the same period, K33 Research found.

The underperformance is due to the costs associated with the fund structure. BITO does not buy tokens but instead holds BTC futures contracts on the Chicago Mercantile Exchange (CME). The fund has to roll over contracts each month as they expire, making it vulnerable to pricing discrepancies between maturities. If the next month’s contract trades at a premium to the next expiry date for a sustained period of time – a phenomenon known as contango and which is typical of a bull market – the fund will experience losses due to “contango bleeding”.

When BITO began trading in October 2021, several observers predicted the fund could underperform the spot market by 10% to 13% on an annualized basis, CoinDesk reported at the time.

In its first year, the fund underperformed BTC by just 1.8% as the crypto bear market helped moderate the contango eruption.

However, this year’s market rally exacerbated the fund’s vulnerability to rolling charges as the CME futures market returned to trading in contango. The difference in performance over the first five months of the year has already reached levels that analysts had been forecasting for a full year.

Investors should expect this trend to continue, Vetle Lunde, a senior analyst at K33, said in a note. “The strong maturity structure remains a problem for the viability of using BITO as a tool to maintain long-term exposure,” he wrote in the report.

The underperformance “highlights the shortcomings of futures-based ETFs compared to spot ETFs” and how “the SEC’s harsh stance on direct BTC spot ETFs is hurting investors,” Lunde added.

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