BITO: Bitcoin Is Failing As A Long-Term Investment

Summary Despite the hype, Bitcoin’s returns over the past 4 years are nearly identical to a 5% flat return, making it a second-tier trading destination for me. BITO was useful before better options like IBIT emerged, but its high costs and mediocre performance lead me to a sell rating. Bitcoin trading has taught me to ride the waves with modest capital, using tools like BITI for short positions without direct shorting risks. While I see potential in blockchain technology, Bitcoin remains a speculative investment with minimal long-term appeal, though I welcome further education on its fundamentals. I just don’t get it, and that’s probably “on me.” Cryptocurrency fans abound. I trade it sometimes, even though those experts on Instagram keep telling me to hold it, and buy more and more of it. They say I should even look at other types of “coins” which I realize does not mean I can do what we saw in the old days: watch cartoons of a character called “Underdog” bite into a coin, thinking that a tip was a dog treat. Here’s bitcoin versus a 5% flat return the past 4 years. Nearly identical. THIS is what all the hype is about? I just don’t get it. YCharts/Sungarden Investment Publishing Here’s a look at ProShares Bitcoin ETF ( BITO ), the bitcoin proxy that is the subject of this article. I have actually used it more than any other cryptocurrency asset because before spot ETFs debuted in January 2024, BITO was the one I found to have the most liquid options market. And when it comes to things, I readily admit I don’t understand, but appreciate as speculative investments (gold, very small stocks and some single-country ETFs meet these criteria too) I like to find a “default” ticker and options to go with it. When the spot bitcoin collection (12 of them debuted in one day, others followed) last year, IBIT rose to the top of the asset ranks and later added options capability, so I use that one a lot more now. But I trade bitcoin sparingly, for reasons I will describe below. Still, for my technical analysis work, BITO’s longer track record (3 1/2 years) served its purpose for a while. BITO is far more expensive than the newer breed of spot price ETFs. And as I’ll show below, its performance is wholly inferior to those products as well. SA Yet, it still has more than $2 billion in assets. That’s much more than perhaps a half dozen ETFs I can think of that have produced much more bang for the buck than bitcoin in any form over the past several years. And, they represent something I can understand, with a clear use case. I cannot say the same for bitcoin. Now, when it comes to the blockchain, that technology I see a future for. And frankly, I know I’m in the minority when it comes to not being a raving fan of crypto. It is just that I’ve seen this movie before, as they say. It is more hype than help, with an entire industry built around it, sprawling and trying to jump in front of each other to get noticed. All with visions of a more perfect world, powered by bitcoin. SA And don’t get me started on the US Presidential Administration’s exploitation of the lemmings segment of the crypto fan base. I managed money through the dot-com bubble. The grifting and baseless promotion was bad then. I think it is worse now. But also like then, some good will come out of it, in the form of companies that provide more than a way to enrich themselves at the expense of unsuspecting others who do don’t know what they are buying. As for me, I don’t know a ton about what I own here either. But that doesn’t distinguish me from much of the crypto crowd. Just please don’t refer to me as a “fanboy.” Below, we see that BITO, which gets its bitcoin exposure through a Cayman private placement, so not even directly in futures, which were formerly the closest thing to the “real deal” spot version. Against those mighty odds, BITO has failed to be competitive has performed in a very mediocre fashion. The bitcoin spot price has outperformed IBIT, but only by…a bit. BITO has been consistently behind, particularly during the recent run-up and pullback this year. Data by YCharts SA So why on earth am I even talking about BITO? Because I think there are several broader investment lessons in it, for my audience. This is based on the bitcoin investing experience of one person (me), over the past 5 years. What bitcoin trading has taught me, so far 1. If the goal is simply to “ride the wave” during the many spikes and plunges of an asset like this, I don’t feel the need to be so precise. I put a very modest amount of capital at risk, with the intention of making a chunk of the gains on the rise or fall of bitcoin over a period typically measured in weeks, not years. And via its opposite ETF BITI, I can profit on the short side too, without the risk of taking a short position. 2. BITO was very useful before something better came along. I liken this to how I own my stocks through option collars. That approach has been around for decades, but the options market is much more liquid across many more stocks and now, ETFs. That makes collaring stocks in this market a no-brainer for me. Yet if I had started a fund to do that back when I was managing funds, no matter how well I performed, I can virtually guarantee that no one would have noticed. 3. My exploration of crypto through BITO, BITI and IBIT the past several years leaves me flabbergasted in some respects. Chief among them: how does BITO still have more than $2 billion in assets and still trades more than $150mm a day in volume?! That tells me it is a habit, a mission, a devotion. But not an investment that is much beyond “number go up” for many of those who traffic in it. Bitcoin has delivered near-zero returns for too long I’m a chartist, so I can trade just about anything in small size. And in bigger size, if I am comfortable with it. I don’t expect to ever be comfortable with bitcoin. If that makes me a pariah, I’m cool with that. I’ve been called worse. Data by YCharts The past 4 years, bitcoin (spot price) has delivered nearly the exact return of the Nasdaq 100. What an ironic twist that is! As we can see, the path to get there was very different. Buy the rumor, sell the news? But what is more remarkable to me: all of this drama and excitement over an asset that has delivered very little on a risk-adjusted basis since 4 years ago. And most of that time was spent just getting back to the 70,000 level it had ramped up to. Arguably, that was the ideal time for it to take off. I will always consider this area of the market to be ripe for profit, but not on a long-term basis. That said, I’m always up for learning, and invite any readers to (politely) educate me in the comments section for this article. Because despite my lack of in-depth knowledge of bitcoin fundamentals, between BITO last year and IBIT this year, bitcoin (long and inverse, ETFs and options) might just be my top dollar-value-added trading vehicle since the start of last year. Go figure. Technical analysis and bitcoin go well together, since any trending asset is ripe for price analysis, as long as the risk is managed. So along with those trading gains, I am quite certain I left even more on the table via my usual chicken approach to risk management. To summarize: BITO was useful, but that time has passed, thus my sell rating. IBIT is useful at times, but bitcoin to me is a second-tier trading destination. Stocks and other macro ETFs make more sense to me. And while I appreciate that there is “something there” when it comes to bitcoin and crypto in general, I am willing to say 3 things: 1. Not a focus area for me 2. I’ll take all the education I can get to try to see what I’m missing in the bigger picture. 3. I’ll take all the near-term gains I can identify, since markets like this often compel us to look outside our comfort zones.

Source: Seeking Alpha