With the mid-October launches of two Bitcoin ETFs, ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF (BTF), owning Bitcoin became more accessible to investors but at a potential cost to fundholders.
ProShares amassed $1.2 billion in investor assets in its first week in the quickest billion-dollar fundraising on record. That success, analysts say, is almost certainly to come at fundholders’ expense. ProShares funds invest in bitcoin futures contracts, agreements to buy or sell the asset later for an agreed-upon price, rather than purchasing bitcoin directly through cryptocurrency exchanges. Once these contracts expire, the fund must roll over to contracts expiring the next month. Some investors are aware of this forced rollover and will buy the next month’s futures first. That drives up the fund price and allows traders to profit by selling into the demand created during the rollover.
According to Charlie Morris, founder and chief investment officer of ByteTree Asset Management, the annualized roll yield on bitcoin futures, or the gap between the front-month futures and bitcoin’s price, averaged 8.4% over the past year. In other words, for every $100 in gains made by bitcoin, an investor would net $91.60 annually before fees. With volatility, the roll yield gap could widen and decrease the net return for investors.