Bitcoin ETF: Why BITO Isn’t a Great Investment
The crypto markets were red-hot after the debut of the first Bitcoin ETF on the New York Stock Exchange. The excitement surrounding the Proshares Bitcoin Strategy ETF (NYSE: BITO) did wonders for crypto markets as a whole. Even though it’s not the first crypto ETF, it was an impressive unveiling.
The news was enough to send Bitcoin to its all-time high valuation. Even Bitcoin-adjacent coins like Ethereum, Solana, and Binance Coin had a fire lit under them. All of this begs the question, is the Bitcoin ETF a good investment?
It’s a good question, honestly. On one hand, it gives stock market investors easy access to crypto. And it could drag some dedicated crypto investors to the stock market. On the other hand, both might stick to their respective corners in the long run. Though, that certainly doesn’t appear to be the case short-term.
On its first day of trading, the excitement was evident. Shares of BITO jumped up a solid 4.8% before the closing bell rang on its first day. However, in a similar timeframe, Bitcoin’s value went up an even more impressive 7.6%.
That said, in the short time since it ramped up to its all-time high, Bitcoin has pulled back quite a bit. So much so that “Bitcoin flash crash” has been trending on Google. Meanwhile, the BITO ETF has been fairly stable – at least by comparison. But does its stability make it a better investment than actual crypto? For that, we reached out to crypto expert Andy Snyder.
Why Cryptocurrencies Are Surging and the Bitcoin ETF Might Not
It boils down to regulations and the clarity around crypto that could send Bitcoin to further all-time highs, says Andy. The approval of the first U.S.-based Bitcoin ETF gave us a clearer view of Washington’s stance on cryptos. And now that the toothpaste is out of the tube so to speak, there’s no putting it back in. Similar investment instruments are likely to follow. And that’s also likely to continue pushing the value of cryptos higher… At least the worthwhile ones.
But here are Andy’s more solidified thoughts on whether BITO is worth your investment in the form of an analogy:
Would you rather eat a slice of fancy wagyu beef straight from Japan… or get a mouthful of the fake stuff from Impossible Foods?
To be fair, a Bitcoin-based fund is immensely useful. It offers easy exposure to the hottest asset class on the planet.
Continuing with our analogy, it tastes a lot like the real stuff. But even if it looks like Bitcoin and tastes like Bitcoin… it’s not Bitcoin.
There are a pair of key differences between Bitcoin and the Bitcoin ETF. And they both point to the ETF being nothing more than a compromise.
The first is cost. The annual expense ratio of BITO is 0.91%. That’s not terrible. But it is twice as much as the average ETF on the market. The second factor is that the Bitcoin ETF mangers aren’t allowed to actually buy and sell Bitcoin. They deal in futures trading. The problem here is that futures expire each month. And it costs money to roll futures contracts over to the next month. And those costs can bring down the fund’s overall return.
Why Costs Matter
The futures market is inefficient. In a volatile market (which Bitcoin is known to paddle the waters of), it’s unlikely the Bitcoin ETF will accurately track the price of the actual thing. That said, in the early days, there is likely to be a correlation. This thing is just getting started. But even more trouble lies in the quiet times.
Remember this is a futures-based ETF. If the coin behind those contracts remains flat, contracts will be rolled over. And again, the rising costs associated with those rollovers could quickly become a growing issue.
The Bitcoin ETF is an exciting addition to the speculative upside of crypto as a whole. But to put it simply, those rising costs will add up. And that makes the real thing a stronger – if not smarter – long-term investment.
The Bottom Line on the New Bitcoin ETF
Make no doubt about it. Crypto investors should be applauding the fact that BITO finally got clearance from the Securities and Exchange Commission. It’s yet another big step towards wider crypto adoption. But investors should be leery of it. Besides, for anyone with a Coinbase account, there are better investment opportunities out there.
In fact, if you’re looking for the next big thing in crypto, we suggest signing up for Andy’s Manward Financial Digest e-letter. It’s packed with sage investment advice just like the quote you read above. And all you have to do is enter your email address in the box below to get started.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.