Bearish Options Traders Target a Bitcoin ETF to Capitalize on the Fall in Crypto

Bitcoin futures-related exchange traded funds are turning heads, and even the recent plunge in cryptocurrency prices attracted even more bearish options traders to the bitcoin ETFs to capitalize on the short trade.

The ProShares Bitcoin ETF (BITO) declined 36.9% year-to-date, following the fall off in the cryptocurrency markets.

Nevertheless, BITO continues to attract opportunistic traders as the short interest in the $748 million ETF as a percentage of shares outstanding rose to almost 11% of total assets, or close to the highest level since the fund’s October 2021 launch date, Bloomberg reported.

Additionally, BITO’s ratio of open interest in bearish options put contracts to long call open interest has widened since mid-April to all-time highs.

The increased interest in bearish BITO options indicates that cryptocurrency bears are turning to the ETF as an easy and liquid avenue to short sell the cryptocurrency in a market without a dedicated inverse or short bitcoin ETF to capitalize on the fallout across the crypto market.

Fund sponsors, including Direxion, ProShares, and AXS, have issued exemptive relief filings with the Securities and Exchange Commission for ETFs that would provide short exposure to Bitcoin futures contracts, but none of the applications have passed regulatory scrutiny yet. Consequently, bearish traders have turned to betting against BITO, the first and largest US-listed Bitcoin derivatives ETF by assets, as a proxy bearish play.

“BITO is the first, it’s bigger, and there’s more volume,” Athanasios Psarofagis, Bloomberg Intelligence ETF analyst, said. “The other ones have been a bit of a flop.”

BITO was the first U.S. bitcoin-linked ETF that offers investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid, and transparent way. The fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. BITO does not invest directly in Bitcoin, and the price and performance of Bitcoin futures should be expected to differ from the current “spot” price of Bitcoin.

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