BITU: Should You Buy This Leveraged ETF With Bitcoin At All-Time High?

Summary BITU is a 2x leveraged Bitcoin ETF best suited for active traders aiming to time short-term market moves, not long-term investors. Despite Bitcoin hitting new all-time highs, BITU underperformed YTD due to volatility and the inherent risks of leveraged ETFs, including value decay. I remain very bullish on Bitcoin long term but would avoid entering BITU at current levels, preferring to hold Bitcoin directly instead. My hold rating on BITU reflects its high risk, underperformance in volatile markets, and suitability only for tactical, short-term trades. I last covered the Proshares Ultra Bitcoin ETF ( BITU ) in December 2024 , arguing how this is an ETF only suitable for active traders. Today, I am revisiting this ETF and asking myself a different question: with Bitcoin USD ( BTC-USD ) hitting new all-time highs, would it make sense for a risk-prone investor to enter a trade in BITU to maximize future gains? BITU: Performance Since My Last Coverage In December, at the time of my last BITU coverage, Bitcoin was worth ~$101,000 per coin. At the time of writing, after some volatility and correcting down to the mid-80Ks, Bitcoin hit a new ATH of ~$119,000 per coin. So, how did BITU perform? In line with what I described in my last coverage, BITU underperformed its underlying crypto asset YTD by almost 20%, as the table below shows. BITU vs. IBIT; YTD (Seeking Alpha) This underperformance happened by design. BITU, like all leveraged ETFs, faces challenges during volatile periods. Its high leverage magnifies both profits and losses, making recovery from steep declines difficult. When the underlying index falls sharply, the daily rebalancing needed to sustain 2x leverage gradually reduces the ETF’s value, leading to underperformance compared to the unleveraged index, even if the market later reaches new all-time highs. This is exactly what happened YTD, with Bitcoin suffering a steep decline in price around the end of April and BITU not managing to recover yet , even as Bitcoin hit new ATHs. BITU: ETF Profile and Evolution The BITU ETF is a leveraged fund that “seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Bloomberg Bitcoin Index.” Rather than directly owning Bitcoin, BITU employs financial tools like swaps to track and double Bitcoin’s daily price changes. This approach shields BITU from custodian risks faced by standard Bitcoin ETFs. However, it carries counterparty risk, as the fund depends on instruments issued by financial entities, such as investment banks, which are among the swap providers for the fund. Like every leveraged fund, BITU charges a hefty 0.95% expense ratio (which I find reasonable given the nature of the fund and cost of leverage). BITU also has good liquidity metrics, with a Bid/Ask spread currently at 0.04%, significantly less than the 0.06% that it registered in December at the time of my last coverage. I see this as a positive development in the context of the objective of the fund. It means, in my opinion, that active traders are using BITU consistently , improving its liquidity. BITU’s AUMs are just slightly above what they were in December. They increased by $50 million, equivalent to ~4% of the $1.26 Bln AUM figure. Timing the Bitcoin Market With BITU: Not for Everyone I think the only sensible way to use leveraged ETFs is by holding them short-term when trying to time the market. This is a concept I described in my previous work on Seeking Alpha, including in my recent coverage of a semiconductor leveraged fund that may be a good play in case of a new AI Wave . BITU is no exception. Traders who believe we are on the cusp of a sustained Bitcoin bull run in the upcoming months may want to consider entering at this point in time to maximize their gains. Personally, I am a long-time Bitcoin bull. Having recently covered my thoughts on Bitcoin developing as a global reserve asset based on on-chain data , my bull case remains that of Bitcoin maturing into an asset that rivals gold in market capitalization. I have a target of roughly $750,000 per Bitcoin. However, I also refrain from short-term Bitcoin predictions, and I do not actively trade it. I do believe that we may see further volatility ahead before Bitcoin actually matures into a reserve asset. In fact, I believe it may take longer than many expect to get there, as institutions will take time to actually adopt a prominent “holding behavior”. This is again something readers can see in my previous Bitcoin work , and that I won’t cover in more detail in this article. In a scenario where I was forced to only be exposed to Bitcoin with leveraged products, today I would wait. While I am not using Technical Analysis to predict short-term Bitcoin movements, I do like the “Fear and Greed Index ” as a gauge of short-term price movement. This is an index that measures investor sentiment, using factors like volatility and trading volume on a 0–100 scale. Low scores (0–25) reflect fear, indicating caution, while high scores (75–100) show greed, pointing at overconfidence. Fear & Greed Index, BTC (Coin Market Cap) The Index is currently signalling the beginning of a new “Greed” phase , with the previous “Fear” phase in March, which corresponded to the bottom of Bitcoin in the mid $80Ks. Based on this index, I do expect the bull run to continue for the immediate future (we are still only at the beginning of a greed phase). But I would still not take the risk of entering BITU now. In conclusion, I would tread carefully and only enter a trade in BITU now if I were an active trader convinced we were going to see new ATHs in the upcoming weeks and months. Risks of Leveraged ETFs The main risk of BITU, as a 2X leveraged fund, is that of underperformance of its underlying asset (Bitcoin) in case of volatility. In my past article on BITU, I explained this risk with an example, which I report here below: – Assume a 2x leveraged ETF based on an asset worth $100. – A -5% move in the underlying asset results in a -10% move for the ETF, reducing its value to $90. – To recover to $100, the ETF needs to gain more than 10% because it’s now starting from a lower base. – If the underlying asset recovers to $100 with a +5.26% move, the leveraged ETF will only gain +10.52%, bringing it to $99.47, not $100. This illustrates the fundamental issue with a fund like BITU. Other risks include its hefty expense ratio (should investors hold it for longer periods of time) and generally the higher volatility of the fund. Conclusion When investing, as the old adage goes, one should try to “ Buy Low, Sell High ”. Of course, this is easier said than done, which is why for most investors (me included) a long-term hold approach is preferable. Personally, I would not enter a 2X leveraged position in Bitcoin via BITU as the cryptocurrency reaches new ATHs. I would rather simply hold Bitcoin long term (which is exactly what I am doing). If I really were to use a leveraged product like BITU, I would prefer to do so when fear hits the crypto market rather than when we are entering a new greed phase. However, some people may disagree, and based on their own assessment (including Technical Analysis or other data points), they may believe we are on the verge of repeatedly seeing new ATHs. For these investors, entering BITU today could actually make sense as it maximizes their exposure and potential gains. My final “ hold ” rating for BITU does not reflect bearishness towards Bitcoin (on the contrary, I am very bullish on Bitcoin long term ), but rather the peculiar, leveraged nature of this fund and its objectives.

Source: Seeking Alpha