Insider Q&A: ProShares CEO Michael Sapir on bitcoin funds

NEW YORK — Bitcoin’s public profile grew six months ago when the first exchange-traded product tied to it hit the market.

It took just two days for the fund, the ProShares Bitcoin Strategy ETF, to amass more than $1 billion. That’s even though the fund, which often goes by its ticker symbol BITO, doesn’t hold bitcoin itself. Instead it invests in futures for bitcoin, a regulated market where traders make bets on where the cryptocurrency is heading in the coming months.

But BITO allowed investors to get involved with bitcoin without having to learn how to hold a cryptocurrency.

Michael Sapir, CEO of ProShares, spoke recently with The Associated Press about the fund’s debut, what kinds of investors it’s serving and about how bitcoin hasn’t lived up to one of its initial pitches to investors. The conversation has been edited for length and clarity.

Q: What do you personally think of crypto? How big a deal will it be, say, 30 years from now?

A: The truth is no one knows. My view is that in 30 years, cryptocurrencies are either going to be a central part of the financial system and integral to our day-to-day living, or cryptocurrencies will be a distant memory for most people, and their history will be taught at business schools.

Q: Do you own any crypto?

A: I do not personally. But my 15-year-old son does. Within the last six months, he has gotten interested in crypto investing, along with his friends.

Frankly, there’s some of the more esoteric cryptocurrencies that he’s taught me a thing or two on.

Q: Were you expecting as big a debut as BITO had?

A: The introduction actually exceeded our expectations. By a good amount, especially the first day. We were watching the volume traded, from the minute that we rang the bell at the New York Stock Exchange. I was looking at the monitor on the floor of the exchange, and every minute after launch, we would see tens of thousands if not hundreds of thousands of shares being traded.

Q: Do you have a sense of who those investors are? Are they young or old? Big institutions or small-time investors?

A: We don’t have a direct relationship with the shareholders, being a security traded on the New York Stock Exchange.

But about 16% of Americans have at some point bought a cryptocurrency. We think a large part of the other 84% are intimidated by the prospect of trying to figure out how to get exposure to cryptocurrency and don’t want to open up a special account to do that and then figure out how to hold a cryptocurrency.

Venturing into the cryptocurrency world can be scary and intimidating. We think a big reason for the success of BITO is it took away a lot of those complications and fears.

Q: So the ones buying your fund are completely different from regular crypto investors?

A: Investors in cryptocurrency skew more toward people who are willing to be early adopters and willing to take on risk. I think the investors in BITO are probably similar to those investors, but we think BITO may be capturing investors who might be crypto hesitant because they can easily access bitcoin exposure through an existing brokerage account they already have and buy it in the way they’re used to buying stocks and exchange traded funds.

One of the advantages we see of BITO is that if you have an IRA, or if you have a 401(k) account that has a brokerage window to it, you have an easy way to get bitcoin exposure by buying a fund like BITO.

Q: The pitch for bitcoin used to be that it would protect an investor’s nest egg by not always moving up and down in the same direction as stocks, offering diversification. But that hasn’t been the case in recent months. Will that scare people away?

A: I think you’re right in the very recent past. Bitcoin seems to have correlated with the movements of stocks. I don’t know if that’s a permanent condition. And there’s been substantial periods in the past where bitcoin has performed uncorrelated with stocks and bonds.

There seem to be two types of investors in cryptocurrencies. The first type are long-term holders who believe that the value of cryptocurrency will go up in value and that hopefully it will provide a diversifier for their portfolio. And the second type of investor is a short-term investor who isn’t concerned about whether it’s correlated with another security or whether it’s diversifying a portfolio. They’re trying to take advantage of short-term movements in the cryptocurrency markets.

Q: One of the criticisms of BITO is that it invests in bitcoin futures, not bitcoin itself. Do you feel customers understand the distinction?

A: In our communications, we made clear that BITO invests in bitcoin futures, not directly in spot bitcoin. That said, there’s been about a 0.99 correlation with spot bitcoin in the futures since we launched, and the performance since we launched has been close to spot bitcoin itself.