ProShares Exec: Bitcoin Futures ETF a ‘Real, Robust and First-class Solution’

Blockworks caught up with Simeon Hyman, head of ProShares’ investment strategy group, to chat about the firm’s bitcoin-linked products.

The company launched the first bitcoin futures ETF — the ProShares Bitcoin Strategy ETF (BITO) — last October and last month brought to market its Short Bitcoin Strategy ETF (BITI) — the first such product in the US to short bitcoin via futures contracts.

“This ETF isn’t exactly launching at the best time, given that bitcoin has already experienced significant carnage,” Nate Geraci, president of The ETF Store, said of the ProShares Short Bitcoin Strategy (BITI) last month.

But ProShares reported that BITI traded more than 870,000 shares, or $35 million of value, on June 22, its second day of trading. Its weekly average volume between July 11 and July 15 was 717,000 shares, or $29 million.

Meanwhile BITO had an average volume of 7,268,000 shares, or $90 million, last week. The change in its net asset value over that span went down 2.7%, compared to bitcoin, which went down 3.1%.

BITI and BITO had assets under management of $81 million and $688 million, respectively, as of July 15.

Though long digital asset investment products saw outflows of nearly $3 million last week, short products, such as BITI, notched inflows of roughly $15 million, according to a Monday CoinShares report.

Bitcoin’s price was about $23,400 on Tuesday at 2 pm ET, up 23% in the past 30 days but down roughly 66% from its all-time high reached last November.

Keep reading for excerpts from Blockworks’ interview with Hyman: 

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Blockworks: ProShares ended up launching BITI after bitcoin’s price had already plummeted. Why did you choose to launch the product when you did?

Hyman: I don’t think you should take anything from the timing other than we wanted to make sure that we got a solution out to investors. In our perspective, seeing the opportunity to provide a solution that’s not out there was our primary objective.

Even the S&P 500, which is probably the greatest source of wealth creation in sort of the history of financial markets, goes down sometimes, so folks need tools. It’s not that easy to short bitcoin, and even if you can pull it off with margin in a brokerage account, those borrow costs can be 5% to 20%. 

So to be able to put this together for 95 basis points, in an ETF, you can buy it in your brokerage account, we just kind of wanted to get it done and we’re the only folks that have provided an ETF solution on both sides of the trade.   

Blockworks: What types of investors are you targeting with BITO and BITI?

Hyman: You can’t always see who’s using the tools, but we think that it’s both individuals and institutions, and we think that it’s both people who have shorter- and longer-term horizons.

If you think about BITO, our daily volume has now eclipsed GBTC, so it’s the most heavily traded liquid thing out there. As I always tell folks, even if your holding period is a long one, the day you go in and the day you come out, even if those days are a year apart, you want that robust trading environment. So we think there are a variety of constituencies out there.

Blockworks: What has the firm seen in terms of investor demand for BITO and BITI amid the current crypto downturn? 

Hyman: That reference point of being the highest-volume guy out there on BITO is a testament to the robustness of the continued utility of it.

It was $1 billion in the first week, which was pretty darn cool…but we’re still $600 million or $700 million on BITO and we’re getting close to $100 million on BITI, so that has been picking up some momentum as well.

Blockworks: What are your thoughts on the spot bitcoin ETF proposals that the SEC has denied? How do you view such a product when compared to BITO?

Hyman: The last many months in the market environment — and let’s just restrict it to bitcoin for a minute — have really proven the efficacy of the futures-based approach.

It’s interesting as you look at what’s been going on just in the spot market, and the lending market, obviously that’s a headline every day.

While more challenges seem to be emerging in the spot market, the futures market is maturing quite nicely. If you look at BITO’s performance year to date, there’s basically no roll costs, and that’s consistent with financial-first principles — there’s no storage cost. So the regular, maturing liquid and arbitrage market should get that down to basically the Fed funds rate by first principles and that’s been happening. 

That’s important to have that well-functioning and maturing futures market with counterparty risk managed all the things that happen in the futures market and the belt and suspenders of being a [1940 Act] ETF stands up there really well.

Blockworks: What are your thoughts on Grayscale’s lawsuit against the SEC? How do you see it playing out?

Hyman: The answer’s who knows, but again I think the key element as an investor today is that I’m super proud that BITO now trades more daily volume than GBTC and you’ve got the hair of the massive discount on that trust.

If I’m an investor…I’d be more interested in OK, I have this thing over there that has this big discount associated with it or I’ve got this nice ETF that tracks real nicely every day and over time that may very well be and looks to be a more robust alternative for investing in bitcoin today.

I don’t know how high [the lawsuit] is on [ProShares’] radar screen. It’s not a thing we chat about.

Blockworks: Having taken the lead on bitcoin futures ETFs and a short strategy for the asset, what other products might ProShares be thinking about launching?

Hyman: We’ll be looking for opportunities for other solutions all the time, but there’s nothing specific I can point to. 

Certainly as we stand today, the futures-based ETF is not at all a second-class citizen. In fact it’s very much the first-class citizen with all those challenges in the spot market, making a futures-based ETF a really important solution and not a second-order one at all.

That said, the spot market may mature as well. It’s part of our R&D efforts; if there’s a day out there somewhere in the future where there are other opportunities, we’ll review them. But I think the most important data point today is the futures-based ETF is a real, robust and first-class solution.

This interview was edited for clarity and brevity.

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