This FAQ explains the ProShares Bitcoin ETF (BITO) in simple terms. You'll learn what it is, how it works, and what beginners should consider before investing.

What is the ProShares Bitcoin ETF (BITO)?

The ProShares Bitcoin ETF (ticker: BITO) is the first U.S. exchange-traded fund tied to bitcoin, launched in October 2021. It doesn't hold bitcoin directly; instead, it invests in bitcoin futures contracts. The fund aims to provide investors with easy access to bitcoin's price movements within a traditional brokerage account.

For beginners, BITO is important because it made bitcoin investing accessible through a familiar stock-like product. You can buy and sell shares just like any other ETF, without needing a crypto exchange or wallet.

How does the ProShares Bitcoin ETF work?

The ProShares Bitcoin ETF works by holding bitcoin futures contracts on behalf of investors, rather than owning bitcoin itself. Futures are agreements to buy or sell an asset at a future date at a set price. As the price of bitcoin moves, the futures contracts adjust, allowing the ETF to track bitcoin's performance with some differences.

Because futures contracts have expiration dates, the fund must "roll" its positions into new contracts each month. This rolling process can cause the ETF's returns to differ from bitcoin's spot price, especially when the futures market is in contango (future prices higher than current prices).

Does the ProShares Bitcoin ETF hold actual bitcoin?

No, the ProShares Bitcoin ETF does not hold actual bitcoin. Instead, it holds cash and bitcoin futures contracts. This is a key difference from spot bitcoin ETFs, which buy and store bitcoin directly. By using futures, BITO gives investors exposure to bitcoin's price without the logistical challenges of custody, private keys, or cryptocurrency exchange management. However, this also means you do not own the underlying asset.

How can I buy ProShares Bitcoin ETF shares?

You can buy ProShares Bitcoin ETF shares through any standard brokerage account, just like you would buy a stock or other ETF. Examples include online brokers such as Fidelity, Charles Schwab, Vanguard, or Robinhood. Simply search for the ticker "BITO" and place an order during market hours.

There is no need to set up a crypto wallet or use a crypto exchange. As with any ETF, you can purchase whole shares or, depending on your broker, fractional shares. Remember to do your own research and consider how BITO fits into your overall investment plan.

What fees and expenses should I expect with BITO?

The ProShares Bitcoin ETF charges an expense ratio of about 0.95%, which is higher than traditional ETFs but common for crypto-related products. This fee covers fund management, operational costs, and the costs of trading bitcoin futures. The fee is deducted from the fund's assets, meaning you see it reflected in the ETF's daily price.

Additionally, trading futures can generate costs that may reduce returns. When comparing BITO to other bitcoin investments, be aware of both the expense ratio and potential roll costs.

What are the risks of investing in the ProShares Bitcoin ETF?

The main risks include market risk, volatility, roll risk, and regulatory risk. Bitcoin is extremely volatile, so BITO share prices can swing sharply. Because the fund uses futures, it may not perfectly track bitcoin's spot price, particularly in contango markets. There is also the risk that regulatory changes affect futures markets or bitcoin itself.

Key risks for beginners:

  • High price volatility can lead to significant losses.
  • Futures roll costs can drag performance.
  • The ETF is not a direct investment in bitcoin.
  • Cryptocurrency and derivatives regulations may change.

How is ProShares Bitcoin ETF different from a spot bitcoin ETF?

The key difference is that the ProShares Bitcoin ETF uses bitcoin futures, while a spot bitcoin ETF holds actual bitcoin. Spot ETFs were approved in the U.S. in early 2024, giving investors direct exposure through a regulated fund. Futures ETFs like BITO existed first and work with contracts that settle at a later date.

In practice, spot ETFs may track bitcoin's price more closely, but both can be used as convenient ways to gain bitcoin exposure through a brokerage. Some investors prefer futures ETFs because they were the first available and may have different tax or regulatory considerations.

Is the ProShares Bitcoin ETF a good investment for beginners?

The ProShares Bitcoin ETF can be a convenient first step for beginners who want bitcoin exposure without managing a crypto wallet, but it is not without risk. Before investing, you should understand that this is a high-volatility, futures-based product, and it may not be suitable for conservative investors.

If you are new to investing, consider starting small and learning about bitcoin first. Also, think about whether BITO is better than a spot bitcoin ETF, which might track bitcoin's price more closely. Always consult a financial advisor if you're unsure.

Final Thoughts

In summary, the ProShares Bitcoin ETF (BITO) opened the door to bitcoin investing on traditional exchanges, but it comes with both opportunities and complexities. It offers easy access, but because it uses futures, it may not perfectly mirror bitcoin's price.

Before deciding, research how BITO fits your goals, risk tolerance, and investment timeline. Beginners should start with a solid understanding of bitcoin and ETFs, and consider consulting a professional. By being informed, you'll be better prepared to make decisions about whether this product is right for you.