Summary The ProShares Bitcoin ETF offers an artificial, variable yield by investing in Bitcoin futures and swaps, not direct BTC exposure. BITO's yield is unpredictable, subject to hefty fees, and creates taxable events, making it less attractive than holding BTC or spot Bitcoin ETFs (e.g., IBIT). BITO may suit early Bitcoin investors seeking to monetize holdings without full liquidation, but its use case is now niche given spot ETF alternatives. I maintain a HOLD rating on BITO due to its limited appeal; broad Bitcoin exposure or yield-agnostic investors should consider spot ETFs instead. If Bitcoin ever matures to match my bull case ($1,000,000 per Coin), I may consider entering BITO to "monetize" my holdings and cover living expenses. Today, limited use cases exist. I have been long Bitcoin ( BTC-USD ) for about five years, and I hold a Bitcoin position with an average purchasing price of ~$25,000. One of the reasons I like Bitcoin, among many others I discussed in my past coverage , is its extreme scarcity, making it a “superior” reserve asset from a technical standpoint. At face value, a product like the ProShares Bitcoin ETF ( BITO ) defies the point of holding Bitcoin. Why force a yield on a “superior” asset? In a world where Bitcoin matures as a global reserve, it doesn’t make logical sense to “sell” (more on how BITO works exactly soon) an asset you reasonably expect will increase in value forever (incidentally, this is also my argument for why Bitcoin will never become a global digital means of payment, but rather an asset). Yet, this ETF exists, and it has $2.49 billion in AUM (Seeking Alpha data). Today, I ask myself what its purpose is and whether a case can be made to hold the BITO ETF. How does BITO generate its yield? The BITO ETF is described by its issuer as the first ETF to target the performance of Bitcoin. I find this definition odd. First, because the age of an ETF is hardly relevant per se, nor an argument to buy it in itself. That is especially true for BITO, considering that the fund does not invest in BTC directly. But, most importantly, because this description misses the main point of BITO, which is to generate an artificial yield from Bitcoin. The main characteristics of BITO are as follows: It does not invest directly in Bitcoin, but in futures and swaps tied to Bitcoin. The issuer markets this fact as “offering Investment Company Act protections and avoids direct bitcoin custody risk—unlike spot bitcoin ETFs.” It distributes a monthly yield generated by futures-related gains. Its issuer specifies how: “the dividend distribution amount for the Fund may change significantly from month to month. In some months, the fund may not make any dividend distributions at all.” It has a management fee of 0.95% and a Bid/Ask spread of 0.05%, which I find reasonable given the somewhat exotic nature of the fund. BITO achieves its monthly yield primarily through a portfolio of front-month CME Bitcoin futures contracts that are continuously rolled forward, supplemented by OTC total-return swaps that replicate the same exposure. The fund’s monthly distributions (a “yield” that stands at ~66% TTM according to Seeking Alpha) represent the net cash generated after expenses. These are derived from two principal sources: Interest income on the cash and short-term Treasury collateral posted for futures margin requirements Realized gains or losses from the rolling of futures contracts and the settlement of swaps. When the Bitcoin futures curve is in backwardation (i.e., near-term contracts trade at a premium to further-out ones), rolling produces positive cash flow (sell high, buy low). In contango (further-out contracts trade above near-term or spot prices, the prevailing condition for most of Bitcoin’s history due to its appreciation), it generates negative roll yield (sell low, buy high). Stonex In the case of BITO, a fund that has to keep rolling from one month to the next, contango slowly bleeds money for the fund (sell low, buy high every month), while backwardation prints money (sell high, buy low). Combined with Bitcoin’s price volatility and fluctuations in short-term interest rates, these factors render the monthly payout inherently variable and unpredictable. Distributions are therefore not fixed income but rather opportunistic cash flows, which may sometimes be return of capital rather than true yield. What’s the point of holding BITO? Back in April 2024, I wrote an article on BITO arguing how one of the main reasons to hold this fund had to do with the fact there were options available for this ETF. That thesis is now invalid, as there are options available in the market for spot Bitcoin ETFs, such as the iShares Bitcoin Trust ETF ( IBIT ). The point of holding BITO, today, seems to be solely its yield. But, as I outlined at the beginning of this article, why would a Bitcoin bull want to sell their Bitcoin to generate an artificial, somewhat unpredictable yield? The more logical approach would be to take a margin loan against Bitcoin, or simply hold it and sell parts of a BTC position when needed. However, investing in the real world can be a little bit different from investment theory. That’s the case, for example, of why dividend investing is successful and pursued by many, even as financial theory suggests dividends should be completely irrelevant in investing. In the case of BITO, I think a reasonable use case could concern someone who has held Bitcoin for a long time and wants to generate a yield out of their BTC stake to pay living expenses, without completely liquidating the underlying asset or having to worry about corrections. That use case, however, hardly exists for anyone at this point in time, in my view. Bitcoin, today, remains a high-stakes bet on this asset maturing as a global reserve. Owning BITO would mean certain underperformance against holding BTC, both as a result of its hefty management fees as well as taxable events (in the form of its yield being paid off). In some very niche cases, BITO could still make sense. For example, early Bitcoin investors who find themselves having significant amounts of BTC and wanting to “monetize” them. Holding BITO, for such people, would make particular sense if they were bullish on Bitcoin. That’s because the BITO fund performs best in backwardation scenarios (as I described previously). Were Bitcoin to keep appreciating roughly in line with its past, investors in BITO would benefit from a relatively safe yield. However, even for those specific use cases, there are some limits. Namely, the fact that BITO’s yield is unpredictable and may be too high for the needs of most. Overall, I think this is a fund that was launched with very different intentions, at a time when investors could not find almost any Bitcoin-related investment in the markets. Today, with a vast choice of spot Bitcoin ETFs in the market (which include options), the BITO ETF has a niche use case. Risks and tax considerations I have already covered the limits of the BITO ETF throughout this article. These include its hefty fees, artificial and fluctuating yield, and the fact the fund is not directly invested in Bitcoin. Beyond the technicalities of BITO, there are also some obvious broader risks in investing in a financial tool tied to Bitcoin. Bitcoin’s technical superiority (such as fixed supply, decentralization, and censorship resistance) does not, by itself, guarantee that it will ever achieve global reserve asset status. Investors who fully understand these properties can still be rationally bearish on Bitcoin. In other words, one can view Bitcoin as a legitimate hard asset and simultaneously doubt that it will ever seriously rival gold, the dollar, or other sovereign reserves. The core risk of owning Bitcoin today is precisely this: that it remains a speculative digital asset rather than maturing into the neutral, apolitical store of value. For BITO specifically, a further element to be considered relates to the tax implications of holding such a fund. With a hefty monthly yield, most investors will find themselves in the situation of having to pay significant income or dividend tax. I am not a tax expert, nor am I based in the US, but investors should carefully consider whether such a yield, with its taxable events, makes sense for their objectives. Conclusion: I may buy BITO to “monetize” my Bitcoin stash, but not today As a Bitcoin bull, I do not see myself holding an instrument like BITO for the foreseeable future. I would consider it only if Bitcoin were to mature into a global reserve asset. As per my BTC bull case , this would mean Bitcoin matching gold in market capitalization and becoming worth up to $1,000,000 per coin. If that were to happen, I think I could see a role for a small position in BITO to monetize my Bitcoin stash. Exactly as I favor dividend investing to some extent , an artificial yield could be desirable to cover living expenses and not having to think about when to sell. My “ HOLD ” rating of BITO reflects its niche use cases today, and not my rather bullish outlook on Bitcoin. I think investors who have BITO in their portfolio are likely to desire an artificial yield on Bitcoin. If that is the case, and investors are OK with the fund’s fluctuating yield and its tax implications, I see no issue in having BITO in one’s portfolio. Investors who want to be broadly exposed to Bitcoin or do not need a yield, on the other hand, would be better off rotating into something like the IBIT ETF.
