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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


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

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