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The ProShares Bitcoin Strategy ETF (NYSEARCA:BITO), a fund that tracks the performance of near-dated Bitcoin futures contracts, was the talk of the investing town in late 2021. BITO launched to much fanfare last October, but it very closely marked the top of the cryptocurrency craze. The ETF, based on Bitcoin futures prices, featured a double-top pattern near $44. Shares then went on to plummet more than 60% to a recent low under $18.
There hasn’t been much of a bounce in the last week despite the crypto market weathering the Terra (LUNA) and TerraUSD (UST-USD) stablecoin saga fine. I would’ve expected more volatility and downside price action among the major tokens such as Bitcoin (BTC-USD) and Ethereum (ETH-USD) this month considering LUNA – once a top-10 by market cap coin – fell from more than a $40 billion valuation to essentially zero within a month and a half.
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So where do we stand today with respect to shares of BITO? We must dig into the outlook on Bitcoin itself. You know how I roll with technical analysis. I like to take the long view first, then home in on the short-term charts. I see long-term support near $20k in BTCUSD – that is the old high from late 2017. In technical analysis, the polarity principle says that what was once resistance becomes future support once a price breakout happens.
Zooming in, Bitcoin had a spike down to below $26k around the LUNA crash. Current price action suggests we might re-test that point on the chart considering BTCUSD is just hanging around this $29-$30k spot – the market rarely give you this long to buy the low. We could ultimately see a flush back to the $20k area (long-term support) which was also the key breakout level from December 2020.
On the upside, there’s resistance near $37,500 and at $47,500. With more than 40% of current Bitcoin hodlers seeing an unrealized loss right now, according to Glassnode, many investors are left wondering what to do. Consider that crypto remains a small asset class. According to Ally, crypto is just a $1.3 trillion arena vs $100 trillion+ for both the global equity and global bond markets.
Traders should also recognize that Bitcoin and BITO trade in close step with the stock market right now. The correlation of Bitcoin to the Nasdaq 100 (QQQ) recently hit an all-time high, according to Bloomberg.
Moreover, massive drawdowns on Bitcoin are nothing new. 70%+ drops from all-time highs are actually quite common for the world’s biggest crypto asset.
I’d rather own Bitcoin itself versus pay the steep management fee of BITO. BITO shares also feature roll yield risk since the product is based on Bitcoin futures, not the spot Bitcoin price.
I think it’s encouraging long-term that Bitcoin and BITO held in there ok during the LUNA crash, but I see near-term downside to $26,000 on Bitcoin. That move would correspond to about $16.50 on BITO. We could see more downside to $20,000 on the coin which would be about $12.75 on BITO. Long-term crypto bulls should consider adding to positions at those levels.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.