Wondering just how bad Bitcoin ETFs have been as an investment this year? Only eight stocks in the S&P 500 are worse.
The largest Bitcoin ETF by far, ProShares Bitcoin Strategy, owns Bitcoin futures. The ETF is down 53.6% just this year. That's an epic fail for an asset many touted as a safe haven from inflation.
You'd have a hard time finding worse stocks in the S&P 500. Just eight have performed worse: Under Armour, Ceridian HCM, Caesars Entertainment, Epam Systems, PayPal, Align Technology, Etsy and the year's worst S&P 500 stock, Netflix, says data from S&P Global Market Intelligence and MarketSmith.
Such poor performance precisely in the moment cryptocurrency was expected to shine is telling. It shows the underappreciated risk of the new asset class.
"As many of these market events occur, they're happening for the first time," said Roxanna Islam, associate director of research at VettaFi. "There hasn't been a lot of precedent set for questions like, 'What would happen during a market crash?' or 'What would happen if a crypto exchange company went bankrupt?' "
Putting Bitcoin ETFs To The Test
If you own Bitcoin ETFs this year, you're losing money. And fast.
The $822.9-million-in-assets ProShares Bitcoin Strategy ETF is the way most people are using ETFs to gain exposure to crypto. And shares of this ETF, created just last year, are already down 53.6% this year. While that's better than the 70% drop in Netflix, the year's worst S&P 500 stock, it's still a stunning fall.
And that makes total sense, as it tracks the price of Bitcoin. The price of Bitcoin itself is down more than 50% this year, says Coinbase. That's not what you'd expect from the "new gold," as some proponents have described Bitcoin. For while many cryptocurrencies lost half their value this year, SPDR Gold Trust is down only 0.1% this year.
Given this year's volatility, investors will need to reconsider the role Bitcoin ETFs play in their portfolios.
"People will believe whatever price leads them to believe," said Ben Johnson, ETF analyst at Morningstar. "And that recent price action has (built) some people's belief that Bitcoin is a viable currency, a store of value, an inflation hedge and any of a number of other narratives that were spun up to perpetuate the notion that it is anything at all as its price climbed higher."
Fortunately, Islam says most investors typically only put 1% to 5% in cryptocurrency. "This type of allocation is not enough to significantly harm a portfolio, but can still be enough to participate in any crypto market gains," she said.
Pain Beyond BITO
It's not just the largest Bitcoin ETF that's suffering. The entire crypto ETF universe is cracking this year.
The second-largest Bitcoin ETF — another futures-based ETF with nearly $25 million in assets, according to ETF.com — is Valkyrie Bitcoin Strategy ETF. It's down more than 53% this year. And the ETFs that own big positions in Bitcoin-focused companies are doing even worse. The First Trust SkyBridge Crypto Industry and Digital Economy ETF, which puts a bigger piece of its portfolio in Coinbase than any other ETF, is down 69% this year.
Amazingly, the industry is still pushing for more Bitcoin ETFs. "I think the biggest thing we're all watching for is whether they'll approve a spot Bitcoin ETF," Islam said. "Grayscale has been pushing for the SEC to approve their request to convert their Bitcoin trust into a spot ETF, and the deadline for SEC approval is July 6."
Bitcoin ETFs: What Are They Good For?
If Bitcoin ETFs don't offer gold-like stability amid inflation and market volatility, many investors may rethink why they own them. For now, they appeal to investors who value Bitcoin's privacy or short-term trading opportunity, Islam says.
"ETF investors generally have a longer-term approach to the crypto asset class and may see it as a small portion of a larger allocation to technology and digital transformation trends," Islam said. "For those with a long-term outlook, the crash could serve as a buying opportunity."
Biggest Bitcoin ETFs All Crater
Largest Bitcoin ETFs by assets
| ETF | Symbol | YTD change | Assets ($ millions) |
|---|---|---|---|
| ProShares Bitcoin Strategy | -53.6% | $822.91 | |
| Valkyrie Bitcoin Strategy | -53.4 | 20.5 | |
| VanEck Vectors Bitcoin Strategy | -55.9 | 19.1 | |
| Global X Blockchain & Bitcoin Strategy | -63.3 | 9.8 | |
| AdvisorShares Managed Bitcoin Strategy | N/A | 0.9 |
