Why BITO’s Success Could be a Double-Edged Sword

The ProShares Bitcoin Strategy Exchange-Traded Fund has seen a massive surge in inflows since its launch, but analysts believe this could hurt investors in the long run, Markets Insider reported.

JPMorgan flagged that the ETF does not own any Bitcoin as its underlying asset and only holds derivatives of the digital token that seek to match the returns through futures contracts.

JPMorgan warned of a possible contango effect, in which the spot or cash price could hit lower than the forward price, and the drag could be several times the products’ management fees.

The drag could even become bigger if the products accumulate substantial assets due to their market impact, leaving investors disappointed as the futures could significantly lag behind Bitcoin.

JPMorgan said the average annual cost roll over futures contracts was recorded at 9% since mid-2019, which is nearly ten times BITO’s annualized expense ratio of 0.95%.

Securities and Exchange Commission Chairman Gary Gensler has favored futures-based funds instead of approving a spot Bitcoin ETF. BITO is down 1.36%, while BTC is down 2.30%.