Inverse Bitcoin ETF. As a financial product, an inverse bitcoin exchange-traded fund (ETF) offers returns that are the opposite of those of its underlying asset, Bitcoin. If the price of bitcoin decreases, the value of the exchange-traded fund (ETF) will increase.
How Does an Inverse Spot Bitcoin ETF Work?
An inverse bitcoin exchange-traded fund (ETF) employs derivatives to move in the opposite direction of the BTC price. A fall in the cost of bitcoin results in an increase in the value of the exchange-traded fund (ETF), while an increase in the price of bitcoin results in a decrease in the value of the ETF. By doing so, investors can profit from decreases in the cost of bitcoin without directly engaging in short-selling of the commodity.
Bitcoin inverse exchange-traded funds (ETFs) could not replicate the cryptocurrency’s performance over the long term owing to issues including tracking errors and fees. Inverse exchange-traded funds are designed for trading with shorter time horizons.
Inverse vs. Regular Spot Bitcoin ETF
An inverse bitcoin ETF aims to provide returns opposite to those of bitcoin. One of the goals of a regular spot bitcoin exchange-traded fund (ETF) is to monitor bitcoin’s performance and represent the overall movement of the token’s price. Unlike standard spot bitcoin exchange-traded funds (ETFs), inverse ETFs frequently use financial derivatives to achieve their goals. This might introduce additional risks and complexities.
Short vs. inverse
An inverse bitcoin ETF aims to provide returns opposite to BTC’s. One of the goals of a regular spot bitcoin exchange-traded fund (ETF) is to monitor bitcoin’s performance and represent the overall movement of the token’s price. Unlike standard spot bitcoin exchange-traded funds (ETFs), inverse ETFs frequently use financial derivatives to achieve their goals. This might introduce additional risks and complexities.
Example
The BetaPro Inverse Bitcoin Exchange-Traded Fund (BITI), a Canadian exchange-traded product, uses the Horizons Bitcoin Front Month Rolling Futures Index. This index has a one-to-one relationship with the daily inverse performance of the bitcoin price.
The financial company ProShares applied to an exchange-traded fund (ETF) to invest in inverse bitcoin on January 16, 2024. About a week had passed since the Securities and Exchange Commission (SEC) of the United States approved spot bitcoin ETFs.
In the prospectus materials for the ProShares UltraShort Bitcoin ETF, the company’s inverse bitcoin ETF, ProShares mentioned that to provide performance, it would use derivatives such as swap agreements, futures contracts, forward contracts, and options on futures contracts, securities, and indexes. This was done to leverage the performance of the inverse bitcoin.
The Fund achieves inverse leveraged exposure to the Index’s single-day returns by acquiring short exposure to Bitcoin designed to provide such exposure. The Fund possesses no direct shorting of Bitcoin. According to the information provided by ProShares, investors interested in shorting Bitcoin directly should consider investing in something other than the Fund itself.
