Crypto: New ProShares ETF shorts bitcoin

ProShares Global Investment Strategist Simeon Hyman joins Yahoo Finance Live to discuss the company's first short bitcoin ETF in the U.S.

Video transcript

- Switching gears back to the crypto crazier. It continues. Bitcoin right now sitting just above $20,000 today and eight months after launching the first US Bitcoin futures ETF. ProShares is expanding its options with the new short Bitcoin linked ETF BITI. Joining us now to discuss, we've got ProShares Global Investment Strategist, Simeon Hyman, joining us here live in "Living Color" on set. Simeon, OK, so first BITO, and then now by BITI. What did you see in the market to really kind of introduce this offering?

- Well, in both cases, we saw the need for a solution. One of the things we've been seeing of late is kind of when the tide comes in, you know the rest of that analogy, but there are cracks in the ability to get Bitcoin exposure, whether long or short. And one of the things that's been holding up incredibly well is the futures market.

So with BITO, we use the long exposure through futures in an ETF wrapper, kind of belt and suspenders where you have the counterparty risk and all those things controlled by the futures clearinghouse, as well as, of course, the ETF wrapper. And then we saw also that it was very difficult to short Bitcoin. Even if you can do it, the cost of the borrow can be in the high teens, even upwards of 20%. So, again, the opportunity to offer investors not just to long exposure, but the opportunity to hedge their portfolios with BITI, with BITI, we thought was something that was worthwhile to bring to the marketplace.

- How does it work?

- Super simple, we just short the futures. And the very nice thing about the futures, as I mentioned, is they're getting more and more efficient. If you look at year to date, a futures index compared to spot, you're right on top of one another. So the whole roll cost thing that people were talking about, that cost is really coming down, the tracking is very, very good. So, therefore, on the short side, we expect the performance to be quite effectively tracked as well. We should, of course, note that it is a once a day rebalance. That's important for folks to know.

- Well, if you're talking about the cost coming in, why then is it more-- is it more cost effective for them to buy this ETF than just to short themselves if the cost of shorting has come down to some extent?

- Well, that's what it certainly appears. Because, again, if you're at an exchange, it's hard to short, even if you could. The borrow cost, the margin cost if you're shorting yourself looks like anywhere from 5% to 20%. So, of course, at a 95% basis point, just a little less than 1% fee on the ETF, that looks pretty attractive. But it's really cumbersome even just to execute it by yourself.

- So if you are shorting, then you still have some calculation or have some belief as to where Bitcoin may find a bottom. Where do you believe that could be at this point in time?

- Well, it's kind of not our job at ProShares to make that declaration. In fact, it's important that for us to offer the solution both on the long and short side, and we've been offering those solutions for many, many years at ProShares. I've been talking about this of late, and I just referenced the S&P 500. And nobody would argue with the notion that over long periods of time, and even not so long periods of time, the market goes up.

I mean, stocks have been, perhaps, the greatest source of wealth accumulation in our lifetimes and in modern financial history. But it just went down 20%. So there are important uses to be able to hedge one's portfolio, as well as to take a longer term bullish view on an asset class.

- Yeah. I have to say, I did notice some jokes upon the launch of this. Oh, well, maybe this is a signal of the bottom then if you have the short ETF that's now out there.

- We knew we'd have to take the smirks, but the timing was really simply as quickly as we could get those solutions out to investors.

- So let's zoom out a little bit, because I know you look at the market more holistically also as part of your role. How are you thinking about it right now? Because it definitely, yeah, we had a couple of days where we were back risk on, now we're risk off again. And it definitely feels like we are in for that as the prevailing sentiment for quite a while.

- Look, interest rates are still historically relatively low. We're still at 3 and change on the 10-year Treasury. There's some reasonable odds that can still go up. We've just started quantitative tightening. But maybe even it goes up to 4%, or 4.5%. You're still historically low, stocks have now pulled back, PE multiples are 17, 18 times. And from our perspective, you kind of got to hate stocks less than bonds.

Bonds are defenseless, the coupons don't grow. So yields up, price down. But stocks can grow, they can grow things like cash flow earnings and, of course, near and dear to our heart with our dividend growth, Nobles, our flagship, we talk in many times the ability to grow dividends. So that's where we think we are as you've got to look for some growth and you have things a little bit cheaper than they were six months ago or 12 months ago. And buckle up, but not a terrible environment.

- In some cases, they're a lot cheaper, I guess, depending on where you're looking.

- Certainly.

- Yeah. All right. Thanks, Simeon. And good to see you. Simeon Hyman, no relation, as I like to mention. ProShares. He's ProShares

Globa Investment Strategist.