Summary ProShares Short Bitcoin Strategy ETF offers a way to profit from a potential decline in the price of Bitcoin. The BITI ETF aims to provide the inverse performance of Bitcoin, allowing investors to also hedge against potential losses. Even though Bitcoin may face a correction shortly after the upcoming halving event, I believe there's enough potential for growth in the longer term. Getting the full picture of the risks and opportunities of a particular investment is crucial for making a wise investment decision. Several days ago I published this bullish article about a spot Bitcoin ETF where I mentioned the upcoming Bitcoin halving event as a major potential growth driver of the BTC price. But what if I am wrong in my assumptions? What exactly can go wrong? In this article, I'd like to present an opposite opinion to my bullish thesis. In my view, it's an excellent exercise any investor should practice. If you're bearish on Bitcoin, then ProShares Short Bitcoin Strategy ETF ( BITI ) may suit your needs to play out a possible, though not probable decline in Bitcoin price. Also, the BITI ETF may be a decent option to hedge your Bitcoin exposure. In this regard, I give the BITI ETF a "Hold" rating. BITI ETF Overview According to the fund's description , ProShares Short Bitcoin Strategy ETF seeks daily investment results that correspond, before fees and expenses, to -1x the daily performance of the Bitcoin price. Simply put, if the BTC price goes down, the BITI ETF shares go up. At the same time, it's important to note that the BITI ETF does not directly short Bitcoin . Instead, the fund invests in Bitcoin futures and swap agreements that provide an inversed effect relative to the BTC price. It's also not recommended for investors to hold the BITI ETF shares for the long term due to the nature of inversed and/or leveraged ETFs like the BITI. Given that the fund tracks the daily performance of the BTC price, the high volatility of Bitcoin may seriously erode your returns if you keep the BITI ETF shares for a long period. In the table below you can check out what returns should you expect in a span of a year depending on the ETF performance and assumed volatility of Bitcoin. ProShares, BITI ETF Prospectus Therefore, the BITI ETF is best suitable when you have a really high conviction about a potential crash in the Bitcoin price. TradingView As for the returns, the BITI ETF -32% year-to-date result is unsurprisingly poor given the recent rally in Bitcoin. Should we expect a massive reversal in Bitcoin rally anytime soon? Let's find out. Unmeaningful Halving There's been a lot of buzz about the upcoming halving event, which is usually associated with a period of strong growth shortly before and one year after the halving event happens. To avoid repetition, I'd suggest reading my recent article where I discuss potential growth amid the halving. The first counterargument to my bullish thesis is that, unlike previous halvings, this and subsequent Bitcoin halving events affect a substantially smaller share of Bitcoin supply. Coindesk Thus, the overall effect from this and all future Bitcoin halvings may be less significant and probably insufficient to cause another wave of growth in Bitcoin. The second counterargument is that from a statistical viewpoint, three previous halvings aren't a large enough sample to rely on in forecasting the future performance of Bitcoin amid the next halving. Strictly speaking, I think this is a fair point, though we still can't fully dismiss the existing track record of previous halvings. ETF Flows And Options Positioning According to Bloomberg, a group of 10 spot Bitcoin ETFs faced the biggest weekly outflow since these ETFs debuted on January 11, 2024. Bloomberg Even though the massive outflow is not an unambiguous signal of Bitcoin reversal, it definitely demonstrates a change in the initially bullish sentiment we observed at the beginning of this year. In the meantime, options traders actively bet on a deeper decline in the BTC price amid the nearing options expiration. The share of put options relative to call options is getting increasingly higher, another sign of a changing mood towards crypto among investors. According to Bloomberg citing data from crypto options exchange Deribit, the strike prices of put options are concentrated around $45,000-50,000. Amberdata Such a background is definitely not positive for Bitcoin. However, we shouldn't forget about higher-level macro inputs that are essential for Bitcoin's future performance. Macro Considerations Despite the aforementioned counterarguments, I still think that in the medium-to-long term, the BTC price is skewed to the upside rather than the downside. Regardless of how "effective" the upcoming halving will turn out for the Bitcoin price, the key variable that, in my opinion, defines BTC's growth potential is financial liquidity. After a period of monetary tightening in 2022-2023, the world is about to gradually move to a softer, normalized monetary policy. Global Liquidity, the pool of cash and credit moving around financial markets, is on track to cyclically reverse . Financial Times While the Fed isn't in a hurry to cut rates, the Fed's Chair Jerome Powell has already hinted about slowing down the pace of quantitative tightening . Against such a background, I see a lot of potential for further Bitcoin growth post-halving. Another factor investors should take into account is the United States' binge on fiscal spending. Even though the US economy shows seemingly healthy GDP growth , the US government runs an outrageously high budget deficit . Tax Foundation The US budget spending getting more and more detached from tax collections isn't the only problem. The current trend of debt borrowing shows that the US government debt may exceed 200% of GDP by 2050. Congressional Budget Office, U.S Government Accountability Office I don't believe that the facts above mean an inevitable and irreversible decline of the US dollar as a world reserve currency. However, such a combination of factors, in my opinion, ensures a long-term upside for Bitcoin simply because it's much easier for governments around the world to create more financial liquidity rather than tighten the monetary and fiscal conditions. More liquidity means more money floating around the financial markets that may end up being allocated to Bitcoin if there are suitable market conditions to do so. The Bottom Line In the near term, I leave open the possibility that the Bitcoin price may face a severe decline let's say to $45,000-50,000, where the majority of put options strike prices are currently located. As we've seen this January, positive events like the approval of spot Bitcoin ETFs sometimes are followed by huge sell-offs , and the upcoming Bitcoin halving may be not an exception. In such a case, the BITI ETF may serve well as a tool to benefit from a hypothetical correction. Nonetheless, macro conditions are still favorable for the long-term performance of Bitcoin, in my opinion. As long as the US and the world in general aren't in a recession, continuously increasing excess liquidity will be absorbed in one way or another by asset classes like crypto, making Bitcoin a sensible option for long-term investors.
