BITO: More Upside Ahead As Investors Await A Spot Bitcoin ETF

Summary Rumors suggest a spot bitcoin ETF may be on the way, potentially overshadowing the Bitcoin Strategy ETF. BITO offers exposure to bitcoin-linked returns through futures contracts and has closely tracked spot bitcoin performance. Price action suggests bullish momentum for both spot bitcoin and BITO, with potential upside targets and long-term support levels. I outline key price levels to watch on BITO's chart ahead of what's often been a bullish seasonal stretch. Rumors are swirling that at long last a spot bitcoin ETF is on the way. Will that leave the Bitcoin Strategy ETF (BITO) in the dust? Maybe not totally, but surely retail investors and advisors seeking to own the cryptocurrency for their clients would find a spot fund more appealing - particularly if a large issuer such as BlackRock can enter the space with a low-cost product. While there are few details about what issuer will take the lead in crafting a spot bitcoin ETF, and there have been no definitive words from the SEC about its potential approval, bitcoin has surged to fresh 2023 highs. I have a buy rating on BITO. I see the fund as having marginally less appeal if and when a spot bitcoin ETP hits the market, but the technical chart of bitcoin looks strong. Moreover, I acknowledge that rising US government budget deficits and heightened volatility in both the stock and bond markets could be tailwinds as we enter what is often a bullish seasonal stretch for crypto. BITO's YTD Total Return Is Close to Bitcoin's Through Oct 23 Stockcharts.com According to ProShares , BITO offers a way to gain exposure to bitcoin-linked returns with the liquidity and transparency of an ETF. It aims to produce returns that correspond to bitcoin. Importantly for prospective investors, BITO invests in bitcoin futures and does not invest directly in bitcoin. There is no guarantee that returns will correspond to bitcoin. The ETF is the world's largest and first US bitcoin-linked ETF and has closely tracked the performance of spot bitcoin since its inception. BITO remains a moderate-sized ETF with total assets under management of about $1 billion (given the recent upside move in bitcoin futures). The annual expense ratio is high, however, at 0.95%. Liquidity is strong with this fund - the average daily volume is more than 8 million shares and ProShares lists the median 30-day bid/ask spread at seven basis points. Share price momentum is very high right now after the major advance in crypto over the last few months. BITO also pays monthly distributions given its Treasury securities holdings, though the payouts vary greatly from month to month. Risk can be high though given volatility in crypto. A possible upside catalyst over the coming years could be massive annual budget deficits at home, though that is widely known in the marketplace. $2 Trillion FY 2023 US Government Budget Deficit Bloomberg Concerns Rising Regarding the Government's Ability To Repay Its Debt Holger Zschaepitz Dollar's Uptrend Breaking? Zero Hedge BITO acts somewhat like a typical commodity ETF in that it holds near-dated futures contracts. Currently, BITO's composition includes 48% of its futures stake in bitcoin futures expiring in October and 52% in November futures. It also holds collateral in Treasury securities. BITO Holdings: Oct & Nov Bitcoin Futures ProShares The issuer constantly must roll out to later-dated contracts, creating an added risk for investors compared to owning spot bitcoin. When bitcoin futures' term structure is in backwardation - a situation in which near-dated contracts are priced higher than later-dated contracts - the fund benefits from buying relatively cheaper futures. The opposite, contango, is bearish. Currently, the term structure is about flat, so the risk is neutral. Bitcoin Future Term Structure CME Group The Technical Take Momentum is extremely high with spot bitcoin right now. Notice in the chart below that the cryptocurrency broke through key resistance just under $32,000 in recent days. I see a bullish upside measured move target to near $39,000 based on the previous $7,000 range. Also take a look at the volume profile on the left side of the chart - while the mid-$30k zone has been a battleground between the bulls and bears, there actually wasn't much volume traded there, so I don't think it will be a major area of possible selling. Bitcoin is nicely above its flat 200-day moving average (which should soon inflect higher) while former resistance at $32,000 becomes new support with longer-term support near $25,000. $48,000 could be a future area of possible profit-taking on a bigger late-year rise. Bitcoin: Upside Breakout, Targeting $39k Stockcharts.com Seasonally, bitcoin tends to perform well in October when averaging all years since 2014 . Bullish trends persist through November and December, too. So, this is a bullish factor to consider. Very Bullish Bitcoin Seasonality Stockcharts.com As for BITO, the chart is less impressive, though the YTD total return is quite comparable to bitcoin. As I write, BITO is near $17.50 in the premarket, so that leaves the $18.39 April peak as resistance. A rally above that could lead to an eventual gap fill near $23 from its downward move in May of 2022. BITO's 200-day moving average is upward-sloping, which is positive, and there is a solid uptrend in its RSI momentum indicator at the top of the graph. Overall, BITO's technicals are not quite as sanguine as spot bitcoin, but a rally through the Q2 high would be encouraging while the $12 to $12.80 area is long-term support. Overall, I am bullish on the near-term technical situation with bitcoin, so that would mean more upside to come in BITO. BITO: Possible $23 Upside Target, $18.40 Near-Term Resistance Stockcharts.com The Bottom Line I have a buy rating on BITO. While I would find more appeal in a liquid and low-cost spot bitcoin ETF, BITO has paced well with spot bitcoin so far in 2023 on a total return basis.