First US bitcoin ETF loses record amount in its initial year

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.

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 $1bn in its first week of trading on the New York Stock Exchange.

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”.

“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 $1.8bn in its debut year, its assets now stand at $624mn. Taking together the timing of inflows and the 70 per cent drop in the fund’s equity price, Morningstar calculates that BITO has lost $1.2bn 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 $125mn of assets and now holds just $60mn.

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 $8.4tn 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 $63,000 on launch day to record highs close to $70,000.

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 $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 $87mn 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