Thursday, December 8

First bitcoin ETF loses record amount in its initial year


BITO’s 70% decline suggests it has burnt through US$1.2 billion of investors’ cash

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One year after its record-breaking launch, the world’s first exchange traded fund tracking the price of bitcoin has lost more of investors’ dollars than any other ETF debut.

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Asset manager ProShares launched its Bitcoin Strategy fund in October 2021, and it immediately became the most successful new ETF in history, amassing more than US$1 billion in its first week of trading on the New York Stock Exchange.

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Bitcoin enthusiasts proclaimed the launch as the moment when crypto joined the world’s biggest equities market and became enmeshed in mainstream investment strategies for retail and institutional buyers alike.

But one year into its existence, the fund has lost money on an unprecedented scale, according to data from Morningstar Direct for the Financial Times.

Its 70 per cent share price drop also makes this the sixth-worst performing debut ETF of its kind of all time, in a test for investors during what has become known as the “crypto winter.”

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“We’ve seen funds nosedive right out of the gate in this manner, but rarely do they attract so much in assets so soon after launching like [this] did,” said Jeffrey Ptak, chief ratings officer at Morningstar Research Services.

The ETF, known as BITO, has attracted inflows consistently through its life, with only light withdrawals. But even with net inflows of US$1.8 billion in its debut year, its assets now stand at US$624 million. Taking together the timing of inflows and the 70 per cent drop in the fund’s equity price, Morningstar calculates that BITO has lost US$1.2 billion of investors’ money, making this by far the biggest debut loser.

Other ETFs have fallen further in their first year, but they have all been far smaller. The Global X Blockchain ETF (BKCH) — another crypto-related fund — plummeted 76.7 per cent in its first year of operation to July, but it peaked at US$125 million of assets and now holds just US$60 million.

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ProShares said in a statement that “since launch, BITO has closely tracked bitcoin, which is what we believe our shareholders want from the fund.”

At the time of the BITO launch, ProShares chief executive Michael Sapir said it was a milestone for the US$8.4 trillion ETF industry, on a par with the first US equity fund in 1993, the first fixed income fund in 2002 and the first gold fund in 2004. BITO’s wildly anticipated launch helped push the price of bitcoin from US$63,000 on launch day to record highs close to US$70,000.

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But in November last year, it became clear that US interest rates would start to push higher, hammering speculative assets. The ETF has tracked the 69 per cent slide in bitcoin itself while the cost of maintaining the futures contracts on which it relies has also eaten into its profits. The token has traded at about US$20,000 for four months.

Earlier this year Jeff Dorman, chief investment officer at asset management firm Arca, said that “Bitcoin…has completely lost its narrative — it is not an inflation hedge, it is not uncorrelated [to other assets] and it does not act defensively.”

Some investors remain true to the crypto cause. Buyers “remained extremely loyal to the long-term thesis for bitcoin,” said Todd Rosenbluth, head of research at consultancy VettaFi, with net inflows of US$87 million into BITO in the past six months despite the price crash.

“The fund has not seen the outflows one would expect given its performance,” Rosenbluth said. “The pendulum has swung away from certain investment theses this year. Historically it can swing back in favour, but the challenge is whether the asset manager has the confidence to keep the product afloat,” he said.

Additional reporting by Scott Chipolina

© 2022 The Financial Times Ltd

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