A year after its record launch, the world's first exchange-traded fund tracking the price of bitcoin has lost more investor dollars than any other ETF that debuted.
Asset manager ProShares launched its Bitcoin Strategy Fund in October 2021, and it immediately became the most successful new ETF in history, adding more than $1 billion in its first week of listing on the New York Stock Exchange.
Bitcoin enthusiasts have proclaimed the launch as the moment the cryptocurrency joins the world's largest stock market and integrates into the mainstream investment strategies of retail and institutional buyers.
But according to data directly provided by Morningstar in the Financial Times, a year after the fund was established, it has experienced losses of unprecedented scale.
Its 70% share price drop also made it the sixth-worst-performing debut ETF of all time, putting investors to the test during the so-called "crypto winter."
Jeffrey Ptak, chief ratings officer at Morningstar Research Services, said: "We've seen funds tumble this way at the outset, but rarely have [this] attracted as much asset so quickly after launch."
The ETF, known as BITO, has attracted inflows throughout its lifespan, with only small withdrawals. But even with a net inflow of $1.8 billion in its first year, its assets are now at $624 million. Combining the timing of the inflows and a 70% drop in the fund's share price, Morningstar calculates that BITO has lost $1.2 billion in investor money, making it the biggest debut loser to date.
Other ETFs fell more heavily in their first year, but all were much smaller. The Global X Blockchain ETF (BKCH) - another cryptocurrency-related fund - plunged 76.7% in its first year of operation through July, but its assets peaked at $125 million and now only holds 60 million Dollar.
In a statement, ProShares said, “BITO has closely followed Bitcoin since its launch, and this is what we believe our shareholders want from the fund.”
At the launch of BITO, ProShares CEO Michael Sapir said it was a milestone for the $840 million ETF industry, on par with the first U.S. equity fund in 1993, the first fixed income fund in 2002 and the much-loved ETF in 2004. The anticipated BITO launch helped push Bitcoin’s price from $63,000 on launch day to an all-time high near $70,000.
But in November it became clear that U.S. interest rates would start to push higher, hitting speculative assets. The ETF has tracked a 69% drop in bitcoin itself, while the cost of maintaining the futures contracts it relies on has eaten into its profits. The coin was trading at around $20,000 in four months.
Earlier this year, Jeff Dorman, chief investment officer at asset manager Arca, said, “Bitcoin . . . has completely lost its narrative — it’s not an inflation hedge, it’s not uncorrelated [with other assets], it’s not going to take Defensive Action".
Some investors remain loyal to the crypto cause. Todd Rosenbluth, head of research at consultancy VettaFi, said buyers “remain very loyal to Bitcoin’s long-term thesis,” with $87 million in net inflows into BITO over the past six months despite the price slump.
"Given its performance, the fund has yet to see the expected outflow," Rosenbluth said. “This year’s pendulum has veered off certain investment thesis. Historically, it may come back in favor, but the challenge is whether asset managers have confidence in keeping the product going,” he said.
