Pro Shares was the U.S.’s first official bitcoin-based exchange-traded fund (ETF), though it’s taken a lot of flak over the past two years given it’s centered on futures rather than spot trading.
Pro Shares: Is It Everything It Claims to Be?
In recent weeks, the company has also taken guff given analysts believe the trading of the derivatives available through the ETF will lead to tracking errors, but Pro Shares doesn’t think this is accurate.
Known as the Pro Shares Bitcoin Strategy Fund, the product has traded under the BITO ticker on the New York Stock Exchange since October of 2021. Global investment strategist at Pro Shares Simeon Hyman is confident in the product and doesn’t think analysts’ concerns are warranted. He stated in an interview:
Concerns about the roll costs are misguided. BITO has closely tracked bitcoin’s price since inception. Since its inception (through 7/18), BITO has returned -54.5 percent compared to -51.5 percent for bitcoin, and over half of that modest difference is BITO’s fee of 95bps per annum.
He also mentioned that the product closely tracks the spot price of bitcoin and thus is quite like trading the actual currency. He said:
For a financial future with no storage costs, as is the case with the CME bitcoin futures, the futures contract premium should be in the ballpark of the term-equivalent interest rate. The Fed’s raising of the benchmark interest rate by 500 basis points since March 2022 has been a key driver of those premiums, and consequently, the roll costs of a bitcoin futures strategy. Here’s the key piece of the puzzle. BITO earns interest on its cash balances which are driven by those same term-equivalent interest rates, which offset the roll costs. The result is close tracking to the price movements of spot bitcoin.
Currently, several additional companies – including standard financial firm BlackRock – have submitted applications to the Securities and Exchange Commission (SEC) for bitcoin-based ETFs. Since BlackRock first took the initiative to do so, it appears six more firms have sent in documentation for review.
Many seem to believe that given BlackRock’s standing with the financial agency, the company has every chance in the world of getting a greenlight on its application. Hyman was asked what he thinks about this situation and if he’s worried about potential competition. He commented that it’s hard to discuss products that don’t exist.
Not Doing Bad at All
BITO’s track record of performance and flows are a testament to the effectiveness of a bitcoin futures strategy within an ETF and investor interest.
To be fair, Pro Shares isn’t doing too badly at the time of writing. The product currently has more than $1 billion in assets under its management, and it sees more than $330 million in crypto inflows each year on average.