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How BITI – The World’s First Inverse Bitcoin ETF – Works

The introduction of Bitcoin – the world’s first decentralized cryptocurrency – in 2009 changed the financial landscape forever. Since then, the digital currency has disrupted global markets to become a popular, speculative asset class that has inspired millions to add cryptocurrencies to their investment portfolios.

But as is true for many investments, significant opportunity can also bring significant volatility and risk. According to Bloomberg data, since reaching an all-time high of $68,992 on November 10, 2021, the price of Bitcoin has fallen 70% to $20,631, as at June 17, 2022. So far, 2022 has not been a good year for Bitcoin.

So far, 2022 has not been a good year for Bitcoin. Year-to-date, the cryptocurrency is down nearly -55%.

Bitcoin 1-Year Performance

Bitcoin 1-Year Performance
Source: Bloomberg, as at June 17, 2022

However, one Bitcoin-focused strategy that has been successful has been shorting Bitcoin futures to achieve inverse exposure to the asset class. While shorting equities on the stock market has been a traditional “bearish” strategy, shorting Bitcoin itself has been difficult because of its decentralized structure.

The BetaPro Inverse Bitcoin ETF (“BITI”), the world’s first ETF to allow investors to achieve short or inverse exposure to Bitcoin, was launched on April 14, 2021, on the Toronto Stock Exchange (“TSX”) in Canada.

BITI is designed to provide daily investment results, before fees, expenses, distributions, brokerage commissions, and other transaction costs, that endeavour to correspond to up to one times (100%) the inverse (opposite) of the daily performance of an Index that replicates the returns generated over time through exposure to long notional investments in Bitcoin Futures. The current underlying index of BITI is the Horizons Bitcoin Front Month Rolling Futures Index (Excess Return) (the “Underlying Index”). It is important to note that BITI does not seek to achieve its stated investment objective over a period of time greater than one day.

BITI uses derivatives to provide investors with inverse exposure to Bitcoin. Therefore, BITI does not provide inverse exposure directly to Bitcoin, it provides inverse exposure to Bitcoin Futures.

The Underlying Index is a proprietary index to assist in calculating and providing exposure to the price of Bitcoin Futures. The Underlying Index is based on the CME Bitcoin Futures contracts traded under the ticker BTC which are owned by the CME Group and its affiliates. BITI will typically use the price of the Underlying Index as determined at approximately 4:00 (EST) as the reference for its investment objective.

As at June 17, 2022, BITI has returned nearly +80% on a year-to-date basis in 2022:
 

ETF Ticker Inception Date Return Date (Daily) 1 Mo 3 Mo 6 Mo YTD 1 Yr Since
Inception
BetaPro Inverse
Bitcoin ETF
BITI 2021-04-14 2022-06-17 38.71% 77.92% 76.10% 79.39% 14.35% 52.36%
BetaPro Inverse
Bitcoin ETF (USD)
BITI.U 2021-04-14 2022-06-17 36.50% 72.38% 74.30% 74.18% 8.49% 47.27%

Source: Bloomberg, as at June 17, 2022

The recent volatility in Bitcoin, and the cryptocurrency market at large, has resulted in a potential opportunity for Canadian investors to benefit from the negative performance in the asset class.

With BITI, investors can achieve simple short exposure on Bitcoin through an ETF that is available through any brokerage or discount brokerage account. With BITI, there is no need for a margin account to gain inverse exposure to Bitcoin – BITI offers the ability to take a short position through one simple ETF trade.Learn more about BITI here: www.horizonsetfs.com/BITI

Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the “Horizons Exchange Traded Products”). The Horizons Exchange Traded Products are not guaranteed, their value changes frequently and past performance may not be repeated. Certain Horizons Exchange Traded Products may have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The prospectus contains important detailed information about the ETF. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. BetaPro Inverse Bitcoin ETF (“BITI”), which is an up to -1X ETF, as described in the prospectus, is a speculative investment tool and is not considered a conventional investment. The Target, an index which replicates exposure to rolling Bitcoin Futures and not the spot price of Bitcoin, is highly volatile. As a result, the BITI is not  intended as a stand-alone investment. There are inherent risks associated with products linked to crypto-assets, including Bitcoin Futures. While Bitcoin Futures are traded on a regulated exchange and cleared by regulated central counterparties, direct or indirect exposure to the high level of risk of Bitcoin Futures will not be suitable for all types of investors. An investment in BITI or any of the BetaPro Products is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. Please read the full risk disclosure in the prospectus before investing. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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