Summary I believe BITU, a 2x leveraged Bitcoin ETF, is suited only for active traders, not for long-term holding strategies. Leveraged ETFs like BITU underperform during volatility, making them unsuitable for mid- to long-term investments in highly volatile assets like Bitcoin. The IBIT ETF by BlackRock, a non-leveraged Bitcoin ETF, offers a more stable and suitable option for investors seeking long-term exposure to Bitcoin. This article is part of my "Bitcoin ETFs Showdown" series, where I compare various Bitcoin ETFs against the IBIT ETF. This article is part of my “Bitcoin ETFs Showdown” series, where I analyze several Bitcoin ( BTC-USD ) ETFs and compare them to the iShares Bitcoin Trust ETF ( IBIT ). Today, I will analyze for the first time a leveraged Bitcoin ETF: the ProShares Ultra Bitcoin ETF ( BITU ), a leveraged fund offering 2x exposure to Bitcoin's daily performance. The reason why I am including BITU in this series is because some investors may wonder if using 2x leverage to gain Bitcoin exposure is viable for mid- to long-term investing (i.e. a "HOLD" strategy) . While investment theory suggests that leverage can make sense in traditional equity markets, its application to Bitcoin requires more careful consideration, in my view. This series does not seek to determine if now is the optimal time to invest in Bitcoin. In my view, Bitcoin remains a high-risk, asymmetric opportunity with the potential to evolve into a global reserve asset, even following its recent bull run. This risk is compounded by the leveraged nature of the BITU fund. Investors unsure about Bitcoin should evaluate its fundamentals and assess whether it fits their risk tolerance and long-term goals. This is especially true for investors considering leveraged funds, which amplify the volatility and risk of investing in an already volatile asset class. BITU: ETF profile The BITU ETF is a leveraged product, which, to quote its issuer : “seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Bloomberg Bitcoin Index”. As a leveraged fund, BITU does not invest directly in Bitcoin. Rather, this ETF invests in financial instruments such as Swaps, to replicate the direction of Bitcoin and amplify its movements. While this means that BITU is not subject to custodian risk (unlike “normal” Bitcoin ETFs), the fund is exposed to counterparty risk, in that the financial instruments it uses to gain exposure to Bitcoin are issued by financial institutions. For example, some of the Swaps held by the fund at the time of writing are issued by Nomura and Goldman Sachs. BITU at a glance (BITU WebPage) Looking at the issuer’s webpage for BITU, it’s clear to me that this product is designed for frequent traders. ProShares explicitly highlights, in the header for BITU, an alternative fund for bearish investors: the ProShares UltraShort Bitcoin ETF ( SBIT ), which shorts Bitcoin. This suggests, in my view, that ProShares is less focused on supporting Bitcoin itself and more interested in profiting from active trading activity - no matter the side of the trade. Another reason that makes me believe this is a fund for frequent traders is its relatively high Daily Average Trading Volume, which at $114.43 Million is a third that of the Fidelity Wise Origin Bitcoin Fund ( FBTC ), an ETF that I previously covered in my Bitcoin Showdown series. This is despite BITU having only $1.27 Billion in Assets Under Management ((AUM)), compared to more than $19 billion in AUM of the FBTC ETF. This article does not cover short-term Bitcoin trading or assess whether Bitcoin is a suitable investment. Instead, the following sections will evaluate whether BITU is a better option than non-leveraged Bitcoin ETFs, such as IBIT. Readers interested in learning more about Bitcoin should take a look at my previous work in this regard. Key metrics at a glance At the time of writing, the BITU ETF has the following metrics: A 0.95% expense ratio, which I find reasonable for the nature of this ETF $114.43 Million in Average Daily Volume and $1.2 Billion in AUM A 0.06% Bid/Ask Spread, decent figure in my view considering the ETF's smaller size, supported by its higher liquidity due to frequent trading I believe investors considering BITU should not overly focus on these metrics, as its 2x leverage more than offsets the impact of slightly less efficient figures. The real question is whether using a 2x leveraged tool to invest in Bitcoin is something even worth considering. BITU: not preferable to IBIT or other non-leveraged ETFs for most investors The BITU fund was only launched in April this year. Despite its brief history, I think this is an interesting period to take into consideration because Bitcoin has experienced a bull run. BITU vs. IBIT performance, since inception (Seeking Alpha) The chart above compares the performance of BITU with IBIT, my favorite Bitcoin ETF (which has no leverage). BITU has trailed behind IBIT for the majority of the year, with its underperformance amplified during a stagnant phase when Bitcoin traded in the $70,000 to $55,000 range. This behavior might seem counterintuitive for readers unfamiliar with leveraged products - after all, if the underlying asset stays flat, why would a leverage product produce negative returns? The reason has to do with the way leverage works, which ends up amplifying downturns. Readers unfamiliar with leverage can understand the reason with a simple example: 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. Additionally, the higher expense ratio (and cost of leverage) of leveraged ETFs also contributes to the underperformance. This is why BITU has underperformed IBIT in a short time frame where Bitcoin traded sideways. BITU has only started overperforming IBIT in the last month, with Bitcoin experiencing a rapid increase in price, following Trump’s victory in the US election. Once again, due to the way leverage works, should Bitcoin stay at current levels for a long time, this overperformance will slowly erode. Because Bitcoin tends to be a highly volatile asset, I do not think a leveraged ETF is ideal for anyone except short-term traders. Conclusion Investors considering Bitcoin exposure—or those already invested—may question whether a 2x leveraged position is suitable for a long-term holding strategy. The answer is unequivocally no. Leveraged ETFs often underperform during periods of simple volatility, even in the absence of a bear market for the underlying asset. While long-term leverage might be viable for some assets, Bitcoin’s extreme volatility significantly amplifies the risks, making this strategy unsuitable. The BITU ETF is suited only for active traders, in my view. My “HOLD” rating reflects this reality and is not a recommendation for long-term Bitcoin holders to retain this fund in their portfolios. Risks of investing in BITU Investing in leveraged ETFs comes with significant risks, some of which I’ve outlined earlier in this article. These include potential underperformance due to simple volatility (even without a bear market), higher fees compared to standard ETFs, and dependency on third-party financial institutions. In the case of a leveraged ETF on Bitcoin—a highly speculative and volatile asset—these risks are magnified. Additionally to risks specific to leverage, investing in Bitcoin is in itself still a speculative gamble on its potential to evolve into a global reserve asset. While I find this prospect compelling for myself, it represents a key risk that anyone must carefully assess. In my opinion, BITU is only suitable for active traders attempting to time Bitcoin's price movements. For investors seeking Bitcoin exposure, IBIT is a more appropriate choice and should be preferred.
