ProShares Short Bitcoin ETF – How it Works


ProShares, the massive ETF company with more than $29 billion in assets, recently filed with the New York Stock Exchange, which then filed with the SEC, to list a ProShares short bitcoin ETF. Although there are many pending ETF applications, this will likely be the first short only ETF that is based on the current market price of bitcoin.

Because institutional investors are not currently permitted to hold actual bitcoins via a digital wallet on an unregulated exchange, the ProShares short bitcoin ETF will short either the Cboe XBT bitcoin futures or CME BTC bitcoin futures. Either way, this won’t be the first time ProShares uses futures to create a short ETF that investors could theoretically purchase in their IRA accounts.

Because the application fo the short bitcoin ETF was withdrawn, due to regulatory concerns, this does NOT mean you are out of options when it comes to shorting bitcoin. One option is to short the bitcoin investment trust GBTC. Ally Invest is one of the only brokers that let their clients trade GBTC since it is an OTC instrument.

Key Points

  • ProShares short bitcoin ETF will move inversely to the price of bitcoin
  • Bitcoin ETFs are arguably the safest way to short bitcoin, especially for large investors
  • ETFs function almost exactly like stocks, except there is a small annual management fee
  • Although the ProShares short bitcoin ETF isn’t ready yet, shorting the Bitcoin Investment Trust (GBTC) creates a bearish bitcoin position and is the same thing
  • GBTC tracks the price of bitcoin and is the fastest, easiest, and safest way to get bitcoin exposure
  • Ally Invest is one of the few brokers that let clients buy/sell GBTC

Go to Ally’s site and trade GBTC 

How does the ProShares Short Bitcoin ETF Work?

ProShares is no stranger to using a basket of futures contracts to create an extremely efficient ETF product for investors. One of the more popular long ETFs in the investing universe is UVXY. ProShares holds tens of thousands of long VIX futures contracts to track the S&P 500 VIX Short-Term Futures Index and leverage it 2x.

ProShares Short Bitcoin ETF will work the exact same way. The fund managers ProShares will assemble a basket of thousands of short bitcoin futures contracts. And this will create an instrument that moves with the price of bitcoin.

You might be thinking, why not just short bitcoin futures and be done with it? Why is ProShares going through all this trouble to create an ETF?

It’s all about connivence. First, futures are not suitable for all investors because the risk profile is slightly higher. Second, more position management and attention is required for futures. ETFs are simple and effective ways to gain exposure to an asset that would otherwise be entirely unavailable.

The Problem with ProShare’s Other ETFs

ProShares is an institutional ETF company with hundreds of fantastic ETFs, but there have been some serious problems with some of their leveraged volatility ETFs that are subjected to contango. Simply put, contango is when the front month future (the future that always trades the most volume and is closest to expiration) trades less in price than the second month future.

Taking a look at the pricing for VIX futures displays what contango looks like.VIX futures contango

This is a problem for anyone that wants to buy volatility. If you buy VXG8, which is what ProShares does for UVXY, you would be buying high and selling low – not exactly a recipe for a stable investment, unless you’re short.

Why Contango is Great for Bitcoin Bears

Although contango will likely not be as bad for bitocoin, it will probably still exist. Contango is a nightmare for those who are long volatility ETFs, but this means it is music to everyone’s ears that is short volatility ETFS. Looking at the current pricing of bitcoin XBT futures, contango for February and March exists.

XBT futures contango

This is great news for those looking to buy the ProShares short bitcoin ETF. Even if the price of bitcoin doesn’t decrease, the ETF will theoretically appreciate due to the fact that ProShares will be shorting the second month futures contract at a higher price than the front month contract.

Final Thoughts

We are really excited to trade both the short and long bitcoin ETFs that are rolling out in the next few months. In the meantime, GBTC is still a fantastic asset to trade on both the short and long to gain exposure to bitcoin.

What is even more exciting for us is the thought of trading options strategies, like short puts and iron condors on all of these new bitcoin ETFs. Bitcoin ETFs are going to change the game. For the first time, fund managers from all over the world will be able to express their opinion on the price of bitcoin, and this could send unprecedented shockwaves through the markets.

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