With the price of Bitcoin dropping by over 57% so far this year, the ProShares Bitcoin Short ETF (BITI) has attracted the interest of investors as its assets under management have grown by over 300% from 27 June to 1 July.
BITI has become one of the largest Bitcoin-related exchange-traded funds (ETF) in just a matter of days. This phenomenon confirms that the consensus opinion in regards to the digital asset’s prospects remains bearish at a point when macroeconomic conditions are expected to deteriorate further.
That said, compared to the amount in assets under management of ProShares flagship long BTC ETF – the Bitcoin Strategy ETF (BITO) – short exposure remains relatively low and that indicates that BITI could be used either as a tool to speculate on BTC’s price swings in the near term or as a hedging vehicle.
“The reception that BITI is getting in the market affirms investor demand for a convenient and cost-effective ETF to potentially profit or hedge their cryptocurrency holdings when bitcoin drops in value”, stated ProShares’ Chief Executive Officer, Michael Sapir, in regards to the success of the firm’s financial product.
BITI was presented on 20 June and officially hit the trading floor the day after. Back then, Sapir presented the product as an alternative for investors to gain short exposure to the digital asset by using their traditional brokerage accounts.
Alongside the launch of the ETF, ProShares also made available a mutual fund called Short Bitcoin Strategy ProFund (BITIX) which follows the same strategy as BITI. Both funds intend to deliver the same outcome, which is to produce the inverse performance of the S&P CME Bitcoin Futures Index.
Being Short on Crypto: One of 2022’s Most Lucrative Strategies
Shorting cryptocurrencies in 2022 has been a lucrative trade as macroeconomic conditions have deteriorated across the globe amid rising inflationary pressures, high commodity prices, and war drums.
Major central banks including the Federal Reserve have taken an increasingly hawkish stand to prevent prices from spiraling out of control within their respective economies. Last month, the Fed hiked its benchmark interest rate by 75 basis points – the highest one-off hike in 28 years.
As a result, investors have adopted a risk-off attitude as they do not believe the worst is over in terms of how far central banks may have to go to get things under control.
Even though BITI is a suitable vehicle for hedging and speculating with Bitcoin, a spot-based vehicle will be more efficient. However, firms like Grayscale, ProShares, and VanEck have failed to obtain approval from the US Securities and Exchange Commission (SEC) to turn their futures-backed vehicles into spot.
Does It Make Sense to Bet Against BTC?
The performance of cryptocurrencies has become more and more sensitive to the overall macro backdrop now that these assets have reached a combined valuation in the trillions.
In a recent blog published by Cesare Fracassi, Coinbase’s Chief Economist, the expert highlighted that the market is expecting a higher correlation between cryptos and traditional assets such as stocks.
As a result, macroeconomic variables will play an increasingly more relevant role in shaping the valuation of digital assets moving forward. With this in mind, investors must make up their mind about what the future hold for the world from a macroeconomic standpoint.
If the baseline scenario is that interest rates will continue to rise while major central banks will aim to deleverage their balance sheet, the outlook for BTC and other cryptos would not be positive considering their now positive correlation with the performance of equities and other asset classes.
Therefore, vehicles such as the ProShares Short Bitcoin ETF can be an option for those who have a pessimistic outlook regarding the global economy or it could also be a way to hedge a crypto-heavy portfolio to reduce losses along the way.
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