ProShares ‘BITO’ ETF nearing contracts limit

ProShares Bitcoin Strategy ETF (NYSE:BITO) is about to hit the limiter, after racing to US$1bn of assets under management in a matter of days.


The exchange-traded fund (ETF) is currently holding 1,900 future contracts for the month of October alone, which becomes problematic as the limit, set by Chicago Mercantile Exchange (CME) is 2,000 for front-month futures contracts.


BITO already has 1,400 future contracts for November.


The ETF on Thursday become the fastest to surpass US$1bn asset under management on Thursday.


ProShares at the launch said BITO will allow investors to gain exposure to Bitcoin returns conveniently, through a brokerage account, adding that “it can be bought and sold like a stock and eliminates the need for an account at a cryptocurrency exchange and for a crypto wallet”.


The critique of the ETF, which is linked to Bitcoin futures, is that it is a suboptimal investment solution compared to trading the underlying cryptocurrency.


Price tracking errors and administration fees that can take away from investors’ profits are some of the concerns that spot ETFs are virtually free of.


It is also suggested that if BITO continues to spread its holdings over-longer dated contracts, it risks distancing itself from the actual Bitcoin price.


Nate Geraci, the president of the advisory firm ‘The ETF Store’ said: “The end result is the ETF will start taking on potentially significant tracking error versus the spot price of Bitcoin. The ETF is forced to obtain Bitcoin price exposure at higher and higher prices as it goes further out on the futures curve.”


Valkyrie Investments’ Bitcoin Strategy ETF (BTF) became the second Bitcoin linked ETF to trade on the stock exchange today.


BITO reached US$43.95 (as of Friday afternoon however, it is trading and US$40.83) an increase from its initial price of US$40. That coincided with Bitcoin reaching an all-time high of US$66,000.


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