BITO: 2 Potential Catalysts To Look Forward To

seekingalpha08-28

ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures.Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield...

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Basics101
·08-29
Great read, thanks! I’m still not entirely convinced that the halving is what drives the price up. Stocks seem to follow a similar cycle, and it coincides with election years. Something to think about!
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Eoneren Overview While I am predominantly a dividend investor, I do maintain some exposure to the crypto markets as a way to diversify my portfolio. Most of my exposure to crypto is Bitcoin related, and I feel that it would be a mistake to completely dismiss the asset class. While I understand the reservations people may have around the riskiness of the asset class, I think the benefits have far outweighed any of these risks. After all, Bitcoin has been the absolute best performing asset class over the last decade. Comparing the price of Bitcoin (BTC-USD) against the S&P 500 (SPY) really helps visualize how strong returns have been for long-term Bitcoin investors. Data by YCharts ProShares Bitcoin Strategy ETF (NYSEARCA:BITO) has found the ultimate combo to get my interest by offering an ETF that has exposure to Bitcoin and also finds a way to generate a massive distribution yield for shareholders. The fund has a dividend yield greater than 44%, which has the ability to produce a large income stream without the need for a sizeable amount of starting capital invested. However, there are some risks involved here, and the yield can fluctuate depending on the month-to-month payouts. Despite potential risks, I believe that there are some positive catalysts that can take Bitcoin higher in price. As a result, BITO should also benefit from a growing price in the future, with the added benefit of collecting income while we wait. The two main sources of future appreciation may come from the recent halving event for Bitcoin in combination with a growing number of investors gaining exposure to the asset class, which ultimately adds a greater sense of price stability. BITO was launched back in 2021, making this a relatively new fund. The expense ratio sits at a very reasonable 0.95% considering that distribution yield that is offered here. According to the most recent fact sheet, net assets have grown to a total $1.77B. First, let's start by reviewing that the strategy is for BITO and how it manages to generate such a high yield in the first place. Strategy BITO has a stated objective to provide returns that correspond to the performance of Bitcoin. However, BITO doesn't actually hold any Bitcoin within and instead opts to maintain exposure to Bitcoin futures. More specifically, BITO invests in cash settled front month Bitcoin futures, which are contracts that have the absolute shortest time to maturity. If BITO is unable to get the desired futures exposure, it may choose to enter a swap agreement that provides a similar exposure to Bitcoin or Bitcoin futures.   ProShares The usage of these futures are what enables BITO to pay out dividends in the first place. The fund sells these futures on a rolling month basis and the income is generated from the gains. The distribution is earned through a mixture of realized gains and net investment income. However, the distributions that are paid out to shareholders pulled directly from the NAV. Therefore, periods where Bitcoin is not rising in value will typically result in BITO's price decreasing with every single distribution paid. Therefore, I believe a good strategy here would be to use BITO as a compliment to an existing position in Bitcoin itself. This way, you would be gaining the price gains of Bitcoin but also being paid a large distribution that can help offset flat markets or even downturns. Think of it as an income hedge if you are long Bitcoin and believe that it will be worth significantly more a decade from now. As of the most recently declared monthly dividend of $1.4470 per share, the current dividend yield remains at a whopping 44%. Although the yield is high, it comes at a cost. Since the fund launched, BITO and Bitcoin have not seen any meaningful price growth. So while you're collecting a high level of income from an investment of BITO, it has the downside risk of your invested capital eroding over time. For instance, the price since inception has fallen by nearly 52%. While the distribution does help offset this a bit by increasing the total return potential, the fund is still heavily reliant on the success of Bitcoin. We can see how the total return for BITO jumps to a loss of 16% when distributions are included. Data by YCharts I do maintain a position in Bitcoin and believe that it will ultimately grow in value. My outlook is driven by two main catalysts that I will share with you all. These catalysts will likely be positive for both Bitcoin and BITO as I plan to strategically use BITO as a vehicle to get the best of both worlds: income and growth. Catalyst #1: Long-Term Buying I don't believe that Bitcoin is as risky of an asset that it once was. In the early days, Bitcoin had a reputation for more nefarious use cases, but this has since shifted to a point where BTC can be considered more of a store of value. As such, it's been an important year for BTC's history, as the SEC approved the first batch of Bitcoin spot ETFs to be available to retailer investors. As such, this expands the global reach of the crypto and makes exposure a lot more obtainable. This is huge because it means that everyone from the beginning investor to the traditional 401k retirement investors can now gain exposure to the asset class. A wider audience of exposure directly translates to a greater amount of capital flowing into this asset class. Recent reports state that BlackRock's Bitcoin Spot ETF saw the highest month-over-month inflows, totaling over $224M of new capital. This only represents cash flowing into publicly listed ETFs and does not show the number of crypto wallets that have exposure to Bitcoin. This prompted me to look at the data on now many unique addresses have exposure as well. There are near 80M different unique addresses that hold exposure to Bitcoin and although the large majority of these have balances less than $1,000, it is still great for the long-term stability of the asset class and reduces the overall volatility.   Exploding Topics These are all relevant points because I believe we will slowly see the effects of reduced supply volatility. Assuming that a majority of Bitcoin investors continue to hold and outnumber the amount of investors selling, the price will eventually become more stable over time. As more of the supply gets bought up and there are fewer Bitcoins being traded back and forth, there will likely be less drastic price swings eventually, despite the price now approaching new highs. This also ties back into the fact that the asset class is now more widely available to the retail masses with the approval of the Bitcoin and Ethereum spot ETFs. As more investors pile in, this could actually improve the sources of liquidity for Bitcoin, leading to smaller spreads on bids and asks. The approval of the ETFs also introduced an influx of institutional investors that may have longer time horizons, further increasing the overall stability of Bitcoin. Even if retail investors were to allocate only 1% of their portfolio to Bitcoin, it could drive value and reduce overall volatility. Most retail investors obtain their exposure to the stock market through their 401k and other retirement-based accounts. Now imagine if the Bitcoin spot ETFs were one of the many pre-selected options available for employees that are deciding what allocation they would like to commit to. It's universally understood that retirement accounts like 401ks are not to be touched until retirement age, which means that a large portion of this exposure is going to be with investors that are holding for the long term. However, I will admit that this relies on investors holding on to their Bitcoin as a store of value over the long term, rather than selling out of their position. This does present a vulnerability because we have no idea what kind of unforeseen challenges can take place in the crypto markets. Bitcoin can still be subject to a wide array of regulatory challenges that ultimately minimize investor confidence in the asset class. Catalyst #2: Halving The Bitcoin halving takes place about every four years and can serve as the next huge catalyst for BTC. The significance is that the reward supply of Bitcoin gets cut in half for miners that contribute to new blocks in the network. The total Bitcoin supply is limited at twenty-one million and this process of reducing the rate at which new Bitcoin are created helps align keeping the value behind the asset. Think of this process as a simple supply and demand tradeoff: as the supply of newly mined Bitcoins decrease, the demand and cost for them will naturally increase over time. A significant piece of this relies on the reaction of Bitcoin's price after every halving event. The data clearly shows us that the price aggressively moves upward after every halving period. The last halving event took place in mid-2020, when the price of BTC sat slightly above $9k per coin. Only six months after the halving event, the price of BTC rapidly appreciated up over the $50,000 mark. Even the halving event before this in 2016, the price of BTC started around $650 per coin and rapidly grew and topped out at $17k by the end of the following year.   BitBo I still believe this to be a catalyst because the most recent halving event actually happened this year in 2024. So far, it seems that the price of Bitcoin has not yet moved up in a similar fashion like prior years. While there is no specific timing as to when the price of BTC will react to the halving, I still believe that the price rise we are looking for has not happened yet and this presents an attractive opportunity to accumulate right now. An added bonus is that Bitcoin can benefit from the added volatility and uncertainty around the upcoming US Presidential elections. Looking at data compiled by Gray Scale, we can see that the price of Bitcoin has historically moved upward after every election period. The same data states that survey results showed a total of 47% of voters expect their portfolio to include some kind of crypto exposure. While this may be purely coincidental as it aligns with the timing of the halving, it's still a pretty cool data point that provides some optimism going forward.   Gray Scale Lastly, inflation levels have continued to be a crushing weight on the economy. While they've recently been cooling, Bitcoin can serve as a great counterweight to the issue as it naturally aligns with a deflationary stance. This is because of the fixed supply that ensures new Bitcoins can never be created past the supply of 21M. While it seems like Bitcoin is no longer in consideration of totally replacing currencies, it's a great option to fight the effects of inflation. As more people become educated and understand this concept, I anticipate increase inflows to happen over the next decade. Downsides Despite the catalysts that, I believe, will happen in over Bitcoin's future, there are some clear risks involved here. The first being that Bitcoin is an extremely volatile asset class that can experience severe price swings at any moment. The same can be said for BITO and the high distributions implemented here have only multiplied this issue. Just as a comparison, following a large price drop throughout 2022 and 2023, BTC has ultimately rebounded and now sits in the green at 1.46%. Over the same time period, BITO has failed to recover to the same levels and still remains down over 52%. This can be attributed to the NAV erosion over time as a result of the high distribution rates issued out month by month. Therefore, BITO isn't the best choice if all you are looking for is Bitcoin exposure. BITO's income comes at the potential cost of your invested capital deteriorating over time if Bitcoin remains flat or decreases in value. I've been seeing the rise of investors using margin to take advantage of these higher yielding assets, and this is something I would not recommend with BITO because of its higher volatility. Data by YCharts Ultimately, it comes down to what your objective is. If you are simply seeking Bitcoin exposure and do not care for the income aspect, you'd be better off buying Bitcoin directly from one of the exchanges. Even if bitcoin were to double in value, BITO may underperform because of the structure that's used here. Remember, BITO doesn't actually hold any underlying Bitcoin and instead trades futures related to Bitcoin. Therefore, the price upside of BITO is likely capped in comparison. Investors should also take the tax consequences into consideration if they are holding a fund like this outside of a retirement account. The distributions received do not have favorable tax treatment similar to the qualified dividends you'd received from a more traditional ETF. They are made up from a combination of net investment income and realized capital gains, which may include portions of the dividend being classified as ordinary dividends. Takeaway  In conclusion, I plan to utilize BITO as a compliment to my underlying Bitcoin exposure. The high levels of income received from BITO can be a great way to offset times of a flat or decreasing price in Bitcoin. However, I believe that the catalyst of these Bitcoin spot ETFs going public will ultimately contribute to a wider amount of investors that gain exposure to the asset class. This influx of capital has the power to make the price of Bitcoin more stable over time if there are more long-term holders and less sellers or active traders. Additionally, the price of Bitcoin has not experienced a meaningful rise after the completion of the halving event. The halving event cuts the supply of newly mined Bitcoin down and historically been associated with large price rises.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":343596163006664,"gmtCreate":1724915375069,"gmtModify":1724915381016,"author":{"id":"4110329905587722","authorId":"4110329905587722","name":"Basics101","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4110329905587722","authorIdStr":"4110329905587722"},"htmlText":"Great read, thanks! I’m still not entirely convinced that the halving is what drives the price up. Stocks seem to follow a similar cycle, and it coincides with election years. Something to think about!","listText":"Great read, thanks! I’m still not entirely convinced that the halving is what drives the price up. Stocks seem to follow a similar cycle, and it coincides with election years. Something to think about!","text":"Great read, thanks! I’m still not entirely convinced that the halving is what drives the price up. Stocks seem to follow a similar cycle, and it coincides with election years. Something to think about!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/343596163006664","repostId":2462458243,"repostType":2,"repost":{"id":"2462458243","pubTimestamp":1724842494,"share":"https://ttm.financial/m/news/2462458243?lang=&edition=fundamental","pubTime":"2024-08-28 18:54","market":"us","language":"en","title":"BITO: 2 Potential Catalysts To Look Forward To","url":"https://stock-news.laohu8.com/highlight/detail?id=2462458243","media":"seekingalpha","summary":"ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures.Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield","content":"<html><body><ul><li>ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures.</li><li>Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield.</li><li>Key catalysts for Bitcoin's future growth include increased retail and institutional investor exposure via Bitcoin spot ETFs and the recent halving event reducing new Bitcoin supply.</li><li>BITO is best used as a complement to direct Bitcoin holdings, providing income during flat or declining markets, but it may underperform Bitcoin itself.</li></ul><p><figure><picture> <img fetchpriority=\"high\" height=\"4300px\" sizes=\"(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px\" src=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w750\" srcset=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg?io=getty-c-w240 240w\" width=\"7167px\"/> </picture><figcaption> <p>Eoneren</p></figcaption></figure></p> <h2>Overview</h2> <p>While I am predominantly a dividend investor, I do maintain some exposure to the crypto markets as a way to diversify my portfolio. Most of my exposure to crypto is Bitcoin related, and I feel that it would be a<span> mistake to completely dismiss the asset class. While I understand the reservations people may have around the riskiness of the asset class, I think the benefits have far outweighed any of these risks. After all, Bitcoin has been the absolute best performing asset class over the last decade. Comparing the price of Bitcoin (</span>BTC-USD<span>) against the S&amp;P 500 (</span>SPY<span>) really helps visualize how strong returns have been for long-term Bitcoin investors.</span></p> <p><figure><img height=\"366\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/saupload_56f8353e54547f895fc8eeb57cccc396.png\" width=\"635\"/><figcaption>Data by YCharts</figcaption></figure></p> <p><a href=\"https://laohu8.com/S/BITO\">ProShares Bitcoin Strategy ETF </a>(<span>NYSEARCA:BITO</span>) has found the ultimate combo to get my interest by offering an ETF that has exposure to<span> Bitcoin and also finds a way to generate a massive distribution yield for shareholders. The fund has a dividend yield greater than 44%, which has the ability to produce a large income stream without the need for a sizeable amount of starting capital invested. However, there are some risks involved here, and the yield can fluctuate depending on the month-to-month payouts.</span></p> <p>Despite potential risks, I believe that there are some positive catalysts that can take Bitcoin higher in price. As a result, BITO should also benefit from a growing price in the future, with the added benefit of collecting income while we wait. The two main sources of future appreciation may come from the recent halving event for Bitcoin in combination with a growing number of investors gaining exposure to the asset class, which ultimately adds a greater sense of price stability.</p> <p>BITO was launched back in 2021, making this a relatively new fund. The expense ratio sits at a very reasonable 0.95% considering that distribution yield that is offered here. According to the most recent fact sheet, net assets have grown to a total $1.77B. First, let's start by reviewing that the strategy is for BITO and how it manages to generate such a high yield in the first place.</p> <h2>Strategy</h2> <p>BITO has a stated objective to provide returns that correspond to the performance of Bitcoin. However, BITO doesn't actually hold any Bitcoin within and instead opts to maintain exposure to Bitcoin futures. More specifically, BITO invests in cash settled front month Bitcoin futures, which are contracts that have the absolute shortest time to maturity. If BITO is unable to get the desired futures exposure, it may choose to enter a swap agreement that provides a similar exposure to Bitcoin or Bitcoin futures.</p> <p><figure contenteditable=\"false\"><picture> <span><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/31369215-17247682081330125.png\"/></span> </picture><figcaption><p><span>ProShares</span></p></figcaption></figure></p> <p>The usage of these futures are what enables BITO to pay out dividends in the first place. The fund sells these futures on a rolling month basis and the income is generated from the gains. The distribution is earned through a mixture of realized gains and net investment income. However, the distributions that are paid out to shareholders pulled directly from the NAV. Therefore, periods where Bitcoin is not rising in value will typically result in BITO's price decreasing with every single distribution paid.</p> <p>Therefore, I believe a good strategy here would be to use BITO as a compliment to an existing position in Bitcoin itself. This way, you would be gaining the price gains of Bitcoin but also being paid a large distribution that can help offset flat markets or even downturns. Think of it as an income hedge if you are long Bitcoin and believe that it will be worth significantly more a decade from now.</p> <p>As of the most recently declared monthly dividend of $1.4470 per share, the current dividend yield remains at a whopping 44%. Although the yield is high, it comes at a cost. Since the fund launched, BITO and Bitcoin have not seen any meaningful price growth. So while you're collecting a high level of income from an investment of BITO, it has the downside risk of your invested capital eroding over time. For instance, the price since inception has fallen by nearly 52%. While the distribution does help offset this a bit by increasing the total return potential, the fund is still heavily reliant on the success of Bitcoin. We can see how the total return for BITO jumps to a loss of 16% when distributions are included.</p> <p><figure><img height=\"366\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/saupload_c9779ebf305cebeb09a36fc321dbc6a7.png\" width=\"635\"/><figcaption>Data by YCharts</figcaption></figure></p> <p>I do maintain a position in Bitcoin and believe that it will ultimately grow in value. My outlook is driven by two main catalysts that I will share with you all. These catalysts will likely be positive for both Bitcoin and BITO as I plan to strategically use BITO as a vehicle to get the best of both worlds: income and growth.</p> <h2>Catalyst #1: Long-Term Buying</h2> <p>I don't believe that Bitcoin is as risky of an asset that it once was. In the early days, Bitcoin had a reputation for more nefarious use cases, but this has since shifted to a point where BTC can be considered more of a store of value. As such, it's been an important year for BTC's history, as the SEC approved the first batch of Bitcoin spot ETFs to be available to retailer investors. As such, this expands the global reach of the crypto and makes exposure a lot more obtainable. This is huge because it means that everyone from the beginning investor to the traditional 401k retirement investors can now gain exposure to the asset class.</p> <p>A wider audience of exposure directly translates to a greater amount of capital flowing into this asset class. Recent reports state that BlackRock's Bitcoin Spot ETF saw the highest month-over-month inflows, totaling over $224M of new capital. This only represents cash flowing into publicly listed ETFs and does not show the number of crypto wallets that have exposure to Bitcoin. This prompted me to look at the data on now many unique addresses have exposure as well. There are near 80M different unique addresses that hold exposure to Bitcoin and although the large majority of these have balances less than $1,000, it is still great for the long-term stability of the asset class and reduces the overall volatility.</p> <p><figure contenteditable=\"false\"><picture> <span><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/31369215-1724779429060635.png\"/></span> </picture><figcaption><p><span>Exploding Topics</span></p></figcaption></figure></p> <p>These are all relevant points because I believe we will slowly see the effects of reduced supply volatility. Assuming that a majority of Bitcoin investors continue to hold and outnumber the amount of investors selling, the price will eventually become more stable over time. As more of the supply gets bought up and there are fewer Bitcoins being traded back and forth, there will likely be less drastic price swings eventually, despite the price now approaching new highs.</p> <p>This also ties back into the fact that the asset class is now more widely available to the retail masses with the approval of the Bitcoin and Ethereum spot ETFs. As more investors pile in, this could actually improve the sources of liquidity for Bitcoin, leading to smaller spreads on bids and asks. The approval of the ETFs also introduced an influx of institutional investors that may have longer time horizons, further increasing the overall stability of Bitcoin.</p> <p>Even if retail investors were to allocate only 1% of their portfolio to Bitcoin, it could drive value and reduce overall volatility. Most retail investors obtain their exposure to the stock market through their 401k and other retirement-based accounts. Now imagine if the Bitcoin spot ETFs were one of the many pre-selected options available for employees that are deciding what allocation they would like to commit to. It's universally understood that retirement accounts like 401ks are not to be touched until retirement age, which means that a large portion of this exposure is going to be with investors that are holding for the long term.</p> <p>However, I will admit that this relies on investors holding on to their Bitcoin as a store of value over the long term, rather than selling out of their position. This does present a vulnerability because we have no idea what kind of unforeseen challenges can take place in the crypto markets. Bitcoin can still be subject to a wide array of regulatory challenges that ultimately minimize investor confidence in the asset class.</p> <h2>Catalyst #2: Halving</h2> <p>The Bitcoin halving takes place about every four years and can serve as the next huge catalyst for BTC. The significance is that the reward supply of Bitcoin gets cut in half for miners that contribute to new blocks in the network. The total Bitcoin supply is limited at twenty-one million and this process of reducing the rate at which new Bitcoin are created helps align keeping the value behind the asset. Think of this process as a simple supply and demand tradeoff: as the supply of newly mined Bitcoins decrease, the demand and cost for them will naturally increase over time.</p> <p>A significant piece of this relies on the reaction of Bitcoin's price after every halving event. The data clearly shows us that the price aggressively moves upward after every halving period. The last halving event took place in mid-2020, when the price of BTC sat slightly above $9k per coin. Only six months after the halving event, the price of BTC rapidly appreciated up over the $50,000 mark. Even the halving event before this in 2016, the price of BTC started around $650 per coin and rapidly grew and topped out at $17k by the end of the following year.</p> <p><figure contenteditable=\"false\"><picture> <span><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/31369215-17247645080110624.png\"/></span> </picture><figcaption><p><span>BitBo</span></p></figcaption></figure></p> <p>I still believe this to be a catalyst because the most recent halving event actually happened this year in 2024. So far, it seems that the price of Bitcoin has not yet moved up in a similar fashion like prior years. While there is no specific timing as to when the price of BTC will react to the halving, I still believe that the price rise we are looking for has not happened yet and this presents an attractive opportunity to accumulate right now.</p> <p>An added bonus is that Bitcoin can benefit from the added volatility and uncertainty around the upcoming US Presidential elections. Looking at data compiled by Gray Scale, we can see that the price of Bitcoin has historically moved upward after every election period. The same data states that survey results showed a total of 47% of voters expect their portfolio to include some kind of crypto exposure. While this may be purely coincidental as it aligns with the timing of the halving, it's still a pretty cool data point that provides some optimism going forward.</p> <p><figure contenteditable=\"false\"><picture> <span><img contenteditable=\"false\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/31369215-17247898558375788.png\"/></span> </picture><figcaption><p><span>Gray Scale</span></p></figcaption></figure></p> <p>Lastly, inflation levels have continued to be a crushing weight on the economy. While they've recently been cooling, Bitcoin can serve as a great counterweight to the issue as it naturally aligns with a deflationary stance. This is because of the fixed supply that ensures new Bitcoins can never be created past the supply of 21M. While it seems like Bitcoin is no longer in consideration of totally replacing currencies, it's a great option to fight the effects of inflation. As more people become educated and understand this concept, I anticipate increase inflows to happen over the next decade.</p> <h2>Downsides</h2> <p>Despite the catalysts that, I believe, will happen in over Bitcoin's future, there are some clear risks involved here. The first being that Bitcoin is an extremely volatile asset class that can experience severe price swings at any moment. The same can be said for BITO and the high distributions implemented here have only multiplied this issue. Just as a comparison, following a large price drop throughout 2022 and 2023, BTC has ultimately rebounded and now sits in the green at 1.46%. Over the same time period, BITO has failed to recover to the same levels and still remains down over 52%.</p> <p>This can be attributed to the NAV erosion over time as a result of the high distribution rates issued out month by month. Therefore, BITO isn't the best choice if all you are looking for is Bitcoin exposure. BITO's income comes at the potential cost of your invested capital deteriorating over time if Bitcoin remains flat or decreases in value. I've been seeing the rise of investors using margin to take advantage of these higher yielding assets, and this is something I would not recommend with BITO because of its higher volatility.</p> <p><figure><img height=\"366\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/27/saupload_f1174eb50bfbe216a9f152cc87933a03.png\" width=\"635\"/><figcaption>Data by YCharts</figcaption></figure></p> <p>Ultimately, it comes down to what your objective is. If you are simply seeking Bitcoin exposure and do not care for the income aspect, you'd be better off buying Bitcoin directly from one of the exchanges. Even if bitcoin were to double in value, BITO may underperform because of the structure that's used here. Remember, BITO doesn't actually hold any underlying Bitcoin and instead trades futures related to Bitcoin. Therefore, the price upside of BITO is likely capped in comparison.</p> <p>Investors should also take the tax consequences into consideration if they are holding a fund like this outside of a retirement account. The distributions received do not have favorable tax treatment similar to the qualified dividends you'd received from a more traditional ETF. They are made up from a combination of net investment income and realized capital gains, which may include portions of the dividend being classified as ordinary dividends.</p> <h2>Takeaway</h2> <div></div> <p>In conclusion, I plan to utilize BITO as a compliment to my underlying Bitcoin exposure. The high levels of income received from BITO can be a great way to offset times of a flat or decreasing price in Bitcoin. However, I believe that the catalyst of these Bitcoin spot ETFs going public will ultimately contribute to a wider amount of investors that gain exposure to the asset class. This influx of capital has the power to make the price of Bitcoin more stable over time if there are more long-term holders and less sellers or active traders. Additionally, the price of Bitcoin has not experienced a meaningful rise after the completion of the halving event. The halving event cuts the supply of newly mined Bitcoin down and historically been associated with large price rises.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>BITO: 2 Potential Catalysts To Look Forward To</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBITO: 2 Potential Catalysts To Look Forward To\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-28 18:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4717549-bito-2-potential-catalysts-to-look-forward-to><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures.Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield...</p>\n\n<a href=\"https://seekingalpha.com/article/4717549-bito-2-potential-catalysts-to-look-forward-to\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1305092068/image_1305092068.jpg","relate_stocks":{"83042":"华夏比特币-R","SDS":"两倍做空标普500ETF","BK4202":"服装、服饰与奢侈品","BK4112":"金融交易所和数据","SPY":"标普500ETF","BK4539":"次新股","BK4516":"特朗普概念","03439":"嘉实比特币","BK4023":"应用软件","BK4554":"元宇宙及AR概念","09042":"华夏比特币-U","OEX":"标普100",".SPX":"S&P 500 Index","UPRO":"三倍做多标普500ETF","SPXU":"三倍做空标普500ETF","SSO":"两倍做多标普500ETF","BK4534":"瑞士信贷持仓","BK4585":"ETF&股票定投概念","03042":"华夏比特币","SH":"标普500反向ETF","IVV":"标普500指数ETF","LU1861558580.USD":"日兴方舟颠覆性创新基金B","BK4504":"桥水持仓","BK4595":"比特币概念","09439":"嘉实比特币-U","BK4535":"淡马锡持仓","FORD":"福沃德工业","BK4559":"巴菲特持仓","OEF":"标普100指数ETF-iShares","03008":"博时比特币","BK4588":"碎股","BK4550":"红杉资本持仓","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","BK4551":"寇图资本持仓","09008":"博时比特币-U","BITO":"ProShares Bitcoin ETF","BK4547":"WSB热门概念","BK4581":"高盛持仓","FDN":"First Trust Dow Jones Internet I"},"source_url":"https://seekingalpha.com/article/4717549-bito-2-potential-catalysts-to-look-forward-to","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2462458243","content_text":"ProShares Bitcoin Strategy ETF does not directly own Bitcoin, but instead holds exposure to Bitcoin futures.Through these Bitcoin futures, BITO generates income and offers a massive 44% dividend yield.Key catalysts for Bitcoin's future growth include increased retail and institutional investor exposure via Bitcoin spot ETFs and the recent halving event reducing new Bitcoin supply.BITO is best used as a complement to direct Bitcoin holdings, providing income during flat or declining markets, but it may underperform Bitcoin itself.   Eoneren Overview While I am predominantly a dividend investor, I do maintain some exposure to the crypto markets as a way to diversify my portfolio. Most of my exposure to crypto is Bitcoin related, and I feel that it would be a mistake to completely dismiss the asset class. While I understand the reservations people may have around the riskiness of the asset class, I think the benefits have far outweighed any of these risks. After all, Bitcoin has been the absolute best performing asset class over the last decade. Comparing the price of Bitcoin (BTC-USD) against the S&P 500 (SPY) really helps visualize how strong returns have been for long-term Bitcoin investors. Data by YCharts ProShares Bitcoin Strategy ETF (NYSEARCA:BITO) has found the ultimate combo to get my interest by offering an ETF that has exposure to Bitcoin and also finds a way to generate a massive distribution yield for shareholders. The fund has a dividend yield greater than 44%, which has the ability to produce a large income stream without the need for a sizeable amount of starting capital invested. However, there are some risks involved here, and the yield can fluctuate depending on the month-to-month payouts. Despite potential risks, I believe that there are some positive catalysts that can take Bitcoin higher in price. As a result, BITO should also benefit from a growing price in the future, with the added benefit of collecting income while we wait. The two main sources of future appreciation may come from the recent halving event for Bitcoin in combination with a growing number of investors gaining exposure to the asset class, which ultimately adds a greater sense of price stability. BITO was launched back in 2021, making this a relatively new fund. The expense ratio sits at a very reasonable 0.95% considering that distribution yield that is offered here. According to the most recent fact sheet, net assets have grown to a total $1.77B. First, let's start by reviewing that the strategy is for BITO and how it manages to generate such a high yield in the first place. Strategy BITO has a stated objective to provide returns that correspond to the performance of Bitcoin. However, BITO doesn't actually hold any Bitcoin within and instead opts to maintain exposure to Bitcoin futures. More specifically, BITO invests in cash settled front month Bitcoin futures, which are contracts that have the absolute shortest time to maturity. If BITO is unable to get the desired futures exposure, it may choose to enter a swap agreement that provides a similar exposure to Bitcoin or Bitcoin futures.   ProShares The usage of these futures are what enables BITO to pay out dividends in the first place. The fund sells these futures on a rolling month basis and the income is generated from the gains. The distribution is earned through a mixture of realized gains and net investment income. However, the distributions that are paid out to shareholders pulled directly from the NAV. Therefore, periods where Bitcoin is not rising in value will typically result in BITO's price decreasing with every single distribution paid. Therefore, I believe a good strategy here would be to use BITO as a compliment to an existing position in Bitcoin itself. This way, you would be gaining the price gains of Bitcoin but also being paid a large distribution that can help offset flat markets or even downturns. Think of it as an income hedge if you are long Bitcoin and believe that it will be worth significantly more a decade from now. As of the most recently declared monthly dividend of $1.4470 per share, the current dividend yield remains at a whopping 44%. Although the yield is high, it comes at a cost. Since the fund launched, BITO and Bitcoin have not seen any meaningful price growth. So while you're collecting a high level of income from an investment of BITO, it has the downside risk of your invested capital eroding over time. For instance, the price since inception has fallen by nearly 52%. While the distribution does help offset this a bit by increasing the total return potential, the fund is still heavily reliant on the success of Bitcoin. We can see how the total return for BITO jumps to a loss of 16% when distributions are included. Data by YCharts I do maintain a position in Bitcoin and believe that it will ultimately grow in value. My outlook is driven by two main catalysts that I will share with you all. These catalysts will likely be positive for both Bitcoin and BITO as I plan to strategically use BITO as a vehicle to get the best of both worlds: income and growth. Catalyst #1: Long-Term Buying I don't believe that Bitcoin is as risky of an asset that it once was. In the early days, Bitcoin had a reputation for more nefarious use cases, but this has since shifted to a point where BTC can be considered more of a store of value. As such, it's been an important year for BTC's history, as the SEC approved the first batch of Bitcoin spot ETFs to be available to retailer investors. As such, this expands the global reach of the crypto and makes exposure a lot more obtainable. This is huge because it means that everyone from the beginning investor to the traditional 401k retirement investors can now gain exposure to the asset class. A wider audience of exposure directly translates to a greater amount of capital flowing into this asset class. Recent reports state that BlackRock's Bitcoin Spot ETF saw the highest month-over-month inflows, totaling over $224M of new capital. This only represents cash flowing into publicly listed ETFs and does not show the number of crypto wallets that have exposure to Bitcoin. This prompted me to look at the data on now many unique addresses have exposure as well. There are near 80M different unique addresses that hold exposure to Bitcoin and although the large majority of these have balances less than $1,000, it is still great for the long-term stability of the asset class and reduces the overall volatility.   Exploding Topics These are all relevant points because I believe we will slowly see the effects of reduced supply volatility. Assuming that a majority of Bitcoin investors continue to hold and outnumber the amount of investors selling, the price will eventually become more stable over time. As more of the supply gets bought up and there are fewer Bitcoins being traded back and forth, there will likely be less drastic price swings eventually, despite the price now approaching new highs. This also ties back into the fact that the asset class is now more widely available to the retail masses with the approval of the Bitcoin and Ethereum spot ETFs. As more investors pile in, this could actually improve the sources of liquidity for Bitcoin, leading to smaller spreads on bids and asks. The approval of the ETFs also introduced an influx of institutional investors that may have longer time horizons, further increasing the overall stability of Bitcoin. Even if retail investors were to allocate only 1% of their portfolio to Bitcoin, it could drive value and reduce overall volatility. Most retail investors obtain their exposure to the stock market through their 401k and other retirement-based accounts. Now imagine if the Bitcoin spot ETFs were one of the many pre-selected options available for employees that are deciding what allocation they would like to commit to. It's universally understood that retirement accounts like 401ks are not to be touched until retirement age, which means that a large portion of this exposure is going to be with investors that are holding for the long term. However, I will admit that this relies on investors holding on to their Bitcoin as a store of value over the long term, rather than selling out of their position. This does present a vulnerability because we have no idea what kind of unforeseen challenges can take place in the crypto markets. Bitcoin can still be subject to a wide array of regulatory challenges that ultimately minimize investor confidence in the asset class. Catalyst #2: Halving The Bitcoin halving takes place about every four years and can serve as the next huge catalyst for BTC. The significance is that the reward supply of Bitcoin gets cut in half for miners that contribute to new blocks in the network. The total Bitcoin supply is limited at twenty-one million and this process of reducing the rate at which new Bitcoin are created helps align keeping the value behind the asset. Think of this process as a simple supply and demand tradeoff: as the supply of newly mined Bitcoins decrease, the demand and cost for them will naturally increase over time. A significant piece of this relies on the reaction of Bitcoin's price after every halving event. The data clearly shows us that the price aggressively moves upward after every halving period. The last halving event took place in mid-2020, when the price of BTC sat slightly above $9k per coin. Only six months after the halving event, the price of BTC rapidly appreciated up over the $50,000 mark. Even the halving event before this in 2016, the price of BTC started around $650 per coin and rapidly grew and topped out at $17k by the end of the following year.   BitBo I still believe this to be a catalyst because the most recent halving event actually happened this year in 2024. So far, it seems that the price of Bitcoin has not yet moved up in a similar fashion like prior years. While there is no specific timing as to when the price of BTC will react to the halving, I still believe that the price rise we are looking for has not happened yet and this presents an attractive opportunity to accumulate right now. An added bonus is that Bitcoin can benefit from the added volatility and uncertainty around the upcoming US Presidential elections. Looking at data compiled by Gray Scale, we can see that the price of Bitcoin has historically moved upward after every election period. The same data states that survey results showed a total of 47% of voters expect their portfolio to include some kind of crypto exposure. While this may be purely coincidental as it aligns with the timing of the halving, it's still a pretty cool data point that provides some optimism going forward.   Gray Scale Lastly, inflation levels have continued to be a crushing weight on the economy. While they've recently been cooling, Bitcoin can serve as a great counterweight to the issue as it naturally aligns with a deflationary stance. This is because of the fixed supply that ensures new Bitcoins can never be created past the supply of 21M. While it seems like Bitcoin is no longer in consideration of totally replacing currencies, it's a great option to fight the effects of inflation. As more people become educated and understand this concept, I anticipate increase inflows to happen over the next decade. Downsides Despite the catalysts that, I believe, will happen in over Bitcoin's future, there are some clear risks involved here. The first being that Bitcoin is an extremely volatile asset class that can experience severe price swings at any moment. The same can be said for BITO and the high distributions implemented here have only multiplied this issue. Just as a comparison, following a large price drop throughout 2022 and 2023, BTC has ultimately rebounded and now sits in the green at 1.46%. Over the same time period, BITO has failed to recover to the same levels and still remains down over 52%. This can be attributed to the NAV erosion over time as a result of the high distribution rates issued out month by month. Therefore, BITO isn't the best choice if all you are looking for is Bitcoin exposure. BITO's income comes at the potential cost of your invested capital deteriorating over time if Bitcoin remains flat or decreases in value. I've been seeing the rise of investors using margin to take advantage of these higher yielding assets, and this is something I would not recommend with BITO because of its higher volatility. Data by YCharts Ultimately, it comes down to what your objective is. If you are simply seeking Bitcoin exposure and do not care for the income aspect, you'd be better off buying Bitcoin directly from one of the exchanges. Even if bitcoin were to double in value, BITO may underperform because of the structure that's used here. Remember, BITO doesn't actually hold any underlying Bitcoin and instead trades futures related to Bitcoin. Therefore, the price upside of BITO is likely capped in comparison. Investors should also take the tax consequences into consideration if they are holding a fund like this outside of a retirement account. The distributions received do not have favorable tax treatment similar to the qualified dividends you'd received from a more traditional ETF. They are made up from a combination of net investment income and realized capital gains, which may include portions of the dividend being classified as ordinary dividends. Takeaway  In conclusion, I plan to utilize BITO as a compliment to my underlying Bitcoin exposure. The high levels of income received from BITO can be a great way to offset times of a flat or decreasing price in Bitcoin. However, I believe that the catalyst of these Bitcoin spot ETFs going public will ultimately contribute to a wider amount of investors that gain exposure to the asset class. This influx of capital has the power to make the price of Bitcoin more stable over time if there are more long-term holders and less sellers or active traders. Additionally, the price of Bitcoin has not experienced a meaningful rise after the completion of the halving event. The halving event cuts the supply of newly mined Bitcoin down and historically been associated with large price rises.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":1,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false}}