October 27, 2021 | by Kevin Jiang, Head of Trading, 3iQ Corp.
Following a landmark greenlight from the Securities Exchange Commission for a bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO) began trading on October 19, 2021, and traded approximately $1 billion in volume on the first day (Source: https://www.nyse.com/quote/ARCX:BITO). This highly anticipated launch helped rally bitcoin to all-time highs, bringing confidence throughout the crypto industry.
One thing to note about futures-based ETFs, for BITO or even more recent entrants like Valkyrie Bitcoin Strategy exchange-traded fund (BTF), is that unlike physically-backed ETFs, futures-based ETFs would have to keep rolling the monthly futures contracts forward to maintain their exposure as front-month contracts approach expiry.
Why this matters to investors is that this rolling process could be costly, and may result in the futures-based ETFs underperforming their benchmark. When futures are in contango (a situation where the futures price of a commodity is higher than the spot price, which usually occurs when an asset price is expected to rise over time), the rolling process could cause a performance drag as the futures-based ETFs “roll” into the more expensive forward month contract. Additionally, since the roll generally happens monthly, futures-based ETFs may incur extra trading commissions which could further encumber tracking performance.
The illustration below shows the one-year performance comparison between the Horizon Bitcoin Front Month Rolling Futures Index (“HBITCNER Index”) and MVIS Bitcoin Benchmark Index (“BBR Index”), which is a difference of -40.24% from October 2020 to October 2021.
Based on the historical evidence in the illustration below, when making investment decisions, investors should be aware that a futures-based ETF may underperform its index by a meaningful margin over time.

Source: Bloomberg as at October 20, 2021. You cannot invest directly into an index. This example is for illustrative purposes only.
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