BITO - Bitcoin ETF May Be Breaking Down at Critical Price Point

17/06/2024, 17:35 BITO: Bitcoin ETF May Be Breaking Down At Critical Price Point | Seeking Alpha
Home Market Outlook Cryptocurrency
BITO: Bitcoin ETF May Be Breaking Down At

Critical Price Point (Technical Analysis)
Jun. 17, 2024 8:00 AM ET | ProShares Bitcoin Strategy ETF (BITO) | IBIT, BITI, BTC-USD
Sungarden Investment Publishing

4.82K Followers
Summary
My chart analysis indicates an increasing probability that bitcoin and thus the BITO ETF,
will break down and head lower, following a period of tightening volatility.
I am indifferent about the bitcoin debate, and I see the long-term potential of blockchain
technology. But my focus as an investor: make money, don't lose big.
I use ETFs like BITO and BITI to try to make money over different time frames, using my
44 years of risk management via technical analysis to make investment decisions.
https://seekingalpha.com/article/4699574-bito-bitcoin-etf-may-be-breaking-down-at-critical-price-point?source=content_type%3Aall%7Cfirst_lev… 1/15
peshkov
People love bitcoin...or they really dislike it. Few are in between. I am one of the in-betweens.
While I see massive potential in the blockchain, as many investors do, I still fail to see
cryptocurrencies as a long-term buy and hold asset. That doesn't mean bitcoin won't skyrocket
in price at some point, and I would not be the least bit shocked to see it plunge to and through
its depths of the past several years.
So, I am indifferent on the aspects of bitcoin that so many investors debate endlessly. I just like
finding ways to make money over multiple time frames. I chart 12 different time frames for
many stocks and ETFs. And the range of ETFs I track is only limited by what 3,400+ such listed
securities allow me to own. Or, rent, as is the case with anything crypto-related.
I am an ardent risk manager, a conservative investor to the core. My number one investing rule
is ABL: Avoid Big Loss. And so when first bitcoin proxies like BITO, and then spot bitcoin ETFs
hit the market over the past several years, I was happy to check them out and figure out if and
how they fit into my overall approach. And since BITO also has a fairly active, though not very
tight (spreads) options market, I have dabbled there as well.
But the other thing BITO has, as many macro-style investments I track do, is an inverse
"cousin." BITO aims to track bitcoin moves. And BITI aims to track the opposite of what BITO
does. And frankly, the ability to play offense or defense as I wish when it comes to this specific
asset class makes me very happy that bitcoin exists. The type of volatility relative to the stock
market exhibited by BITO and its peers versus, say, the average S&P 500 stock (RSP) makes
BITO and BITI very "useable" tools to me.
BITO and BITI: opposites attract me

One thing I like about these "pairs" of long and inverse ETFs is that I can see the relative asset
bases, and it adds another element to my sentiment analysis. Simply put, BITO's assets under
management dwarf those of BITI. It is 24 times the size! Or put another way, if this were an
election between 2 candidates with opposite platforms, BITO would be getting 96% of the vote.
The contrarian in me sees this, as I have with other asset classes in the past (TLT and TBF for
long US Treasuries, QQQ and PSQ for the Nasdaq 100, etc.) and thinks, "There's an
opportunity to potentially profit at some point in time by going against the crowd."
Seeking Alpha
BITO's dividend yield: don't believe it!

I was surprised when I first saw that BITO and BITI pay a dividend. Dividend on what? Bitcoin
doesn't have a yield. This is a great example of when it comes to dividend information on
ETFs, don't believe everything you read!
Technically, it is a dividend, but is really just the mandated distribution of profits on the
underlying futures contracts that power much of BITO's assets. Those contracts don't last
forever, and when they expire, there is a settling up process. And so the profits are distributed
to shareholders as dividends.
Seeking Alpha
So, a higher dividend yield on BITO and BITI (which works the same way) is that the more
bitcoin goes up, the more BITO's dividend will be. I show the difference here, with the bottom of
the chart showing the amount of BITO's gain that was technically a dividend distribution. Note
that the dividend was zero for the ETF's first year, since there were no contracts settling and/or
the price of BITO did not go up.
Data by YCharts
How I fit bitcoin ETFs into my overall investment process

To be clear, while I don't buy and hold bitcoin-related securities, I track them continuously, but
with a focus on price, since I am a technician primarily. As I've written here many times, my
security selection process starts with scouring ETFs and stocks for the fundamental and
quantitative characteristics I like. That leads to a watchlist of names I am willing to own "at a
price" which includes inverse ETFs. From there, the ongoing "blocking and tackling" effort
takes over, and I am willing to hold something for years. But much more likely, I will own it (or
perhaps better stated, "rent" it) several times over the course of a few years. That is NOT
speculation or day-trading. It is my proprietary process of risk management. And it worked well
for me for 27 years, managing other people's money, building a firm around that process, and
selling it to semi-retire at age 56.
None of this is intended to be a "brag." I've made about every dumb move an investor can
make...but always learn from it. And so when a new asset comes along, and the investment
world is split on whether it is digital nirvana or an elaborate scam, I ignore both sides of the
argument. All I care about it making money during the time I own something, and not losing big.
No "style points" here.
Now, to the charts!

BITO is one of many ways to use bitcoin in my portfolio. But to consider it more than something
to rotate in and out of takes more risk tolerance than I want to have. Oh, I will dance around
BITO with very small put option and call option positions, but those might account for maybe
1/10 of 1% of my wealth. If the option went to zero, it would be like losing 1% on a 10%
position in, say, an S&P 500 ETF. This is something I think too few investors think about.
Position sizing.
So when I see BITO with a habit of swinging 50% in either direction in a 3-month period,
versus the average S&P 500 stock (RSP) fluctuating a fraction of that during the same set of 3-
month time frames, I have to position size BITO and BITI (its inverse ETF) much, much lower.
Data by YCharts
BITO is not my ideal ETF when it comes to how it gets at tracking the price of bitcoin. But
beggars can't be choosy, and this is a listed fund investing in an asset that isn't a business,
can't be touched with our hands and which has attracted all types of players, from uber-wealthy
professional investors to 2-bit scam artists. So to me, it is another reason to keep position sizes
low.
I know the swaps and futures industry fairly well as a former Wall Street broker and investment
advisor who started in New York City back in the 1980s. And they have come a long way, and I
realize they are necessary to create many of these vehicles so we can try to make money with
them. But I tend to focus more of my attention on stocks of companies, and options on long-
established indexes and ETFs. And I prefer this to a structure like that of JEPI, where the exact
contracts used to provide covered call income are not fully disclosed. I prefer, and in most
cases insist, on knowing exactly what I own. That's the whole advantage of ETFs in the first
place.
ProShares.com
BITO versus Bitcoin price

BITO did a fine job of tracking bitcoin before spot bitcoin ETFs came along. In fact, when the
first 12 of those spot ETFs debuted back on January 9 of this year, I was like "OK, whatever." I
have used iShares Bitcoin Trust ETF (IBIT), but BITO remains on my watchlist in large part
because I can use it in rotation with BITI when bitcoin gets very "whippy" in its price action, and
it has options listed on it, which the spot ETFs do not at this point.
Data by YCharts
Since IBIT debuted more than 5 months ago, BITO has trailed a bit, but not enough for me to
take it off of my watchlist, for the reasons cited above. IBIT is also on my list, and I have bought
and sold it twice this year.
Data by YCharts
BITO: Technical charts - this is where it gets interesting

For those who think of technical analysis as voodoo, as many did for decades after my late
father (a self-directed investor) taught me starting back in 1980 (with pencil and graph paper!),
what I've written so far was the technical "background" I try to do with every security before it
makes my watchlist. I need a fundamental understanding of what something is, and before I
chart it for decision-making, I do the type of quantitative assessment of correlation, price
pattern, volatility, and evaluating the alternatives.
Now, it is time to get to the good part: am I going to rent BITO, or do something else? This daily
price chart has a very strong pattern. Some call it a triangle or a wedge, but I try to minimize
the lingo and just say what I see. I see a pattern I've seen thousands of times with many
securities and asset classes. It tells me that the chances are strong that BITO is going to move
sharply in one direction or the other.
TC2000 (SunngardenInvestment.com)
Before you say "duh, of course," see how its volatility has been declining for months, and it is
now reaching a point so narrow, it is bound to get more volatile soon. In which direction? Most
likely in the direction it is currently going.
I initiated a position in BITI recently (small, of course) because I saw the price of BITO break
down through that lower line, albeit just slightly. But the indicator on the bottom, my favorite
momentum indicator, also cross below 0.00, which means falling upward momentum. Put those
2 pieces of evidence together, and I saw a modest-risk situation to try to profit from BITI (lower
bitcoin price), maybe for weeks or months, or maybe longer. I won't know until the chart tells
me more. That's how I do things. But with bitcoin, I have seen it to be far less reliable in chart
form, so I tread lightly, and don't try to overthink it.
Below is a weekly price chart, and it looks a lot like the daily chart above. That doesn't always
happen, and that it is the case here increases my chances of being able to hold BITI longer
and make a bigger profit. I also will be considering increasing the position, if (big "if" with crypto
assets) I can make a decent unrealized gain to start. That gives me the financial "permission"
to try to take some of that profit and put it at risk by owning more shares of, in this case, BITI.
But I'm not there yet.
Here's a snapshot of the BITO put options market as of last Friday. Those are some big
spreads, but I'm ok navigating that with, as noted earlier, a small position. I own a tiny amount
of those July 19 expiration, $22.00 puts. Sometimes, I do this simply to have it on my screen in
case it gets more interesting. I prefer not to "paper invest" because it just isn't the same as
having some capital at risk, even if it is something akin to a nice steak dinner for 2–4 people.
https://seekingalpha.com/article/4699574-bito-bitcoin-etf-may-be-breaking-down-at-critical-price-point?source=content_type%3Aall%7Cfirst_le… 10/15
TC2000
I've owned BITO, but currently I own BITI. Here's why.

I guess I could just say the charts told me so. And if the BITO chart looks good enough to try to
make money on from its decline in price, that means BITI is a buy, at least tactically, and in
small size to start. Here is the BITI chart. I'd call this early stage, but that 20-day moving
average turning slightly up is my cue to take a shot at this early on.
As we can see, it is coming off a fake breakout that did not last long in April. But to be clear,
that fake out could have produced a buy of around $8.20 which sprinted up 10% to over $9 a
share in just about 2 weeks. Again, this article is NOT about trading bitcoin ETFs. It is about
reward and risk over different time frames, and how I apply this approach to everything I
consider and own. So with perfect hindsight here, if I were up 10% in 2 weeks, I'd already be
thinking about de-risking a bit because as I say all the time in my articles for Seeking Alpha,
these markets are not like they used to be.
Until a true up market that is more inclusive and less gyrating comes along, it is more likely one
makes 10% in a short amount of time than makes 20% over a year or two. That's my strong
belief.
One knock on inverse ETFs, whether they be single inverse like BITI is to BITO or something
derived from stock or bond market assets, is that the math works against you if you hold them
too long. My response: don't hold them too long! With any pair like this, I expect that over time,
the amount of weeks/months I will hold BITO will dwarf that of BITI. Inverse ETFs fade sharply
if the asset goes up at a fast pace and/or over time. This is a basic element of "playing offense
and defense at the same time" that every investor should learn if they want to invest this way.
I've been investing in inverse ETFs since they first came onto the scene, so I have seen this in
play for a long time.
Data by YCharts
At the same time, the basic role of inverse ETFs is under-appreciated by investors. The goal is
not a perfect inverse. It is to have a way to profit from declines in an asset. And as shown here,
if you owned equal parts BITO and BITI ("arbitrage") so far in 2024, you actually made money
on the "spread" between them. I am not telling anyone to do it, just pointing out that inverse
ETFs are not as bottom-line as many views them. I see many uses for them in my own work.
Data by YCharts
Conclusion: I own BITI, but I am always looking to own BITO

I've covered a lot here. And this article was part BITO and part using BITO as an example of
how long and inverse ETFs can be used together, though not necessarily at the same time. As
I see it, why settle for only trying to increase my liquid net worth on one side of the market?
Every asset class goes up and down, sometimes for months, quarters and years at a time.
Since the late 1990s, well before it was fashionable outside of hedge funds, this type of
modernized "long-short" investment approach has served me well, first as a manager of other
families' money, and now for my own.
I'm holding BITI shares and BITO put contracts in small size now, but if that potential
breakdown I see in the daily and weekly charts as noted above go from a hint of a big move
south to much more than that, I am open to increasing my stake.
This article was written by
Sungarden Investment Publishing

4.82K Followers
The stock market tells us a story…we just have to listen! That’s the mission of Sungarden Investment Publishing
(SIP).Founder Rob Isbitts applies his more than 30 years of hands-on investing experience to dissect the market, bust
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Analyst’s Disclosure: I/we have a beneficial short position in the shares of BITO either through stock ownership, options, or other derivatives.
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.
As noted in the article, I own puts on BITO and am long BITI
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether
any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole.
Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that
include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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17/06/2024, 17:35 BITO: Bitcoin ETF May Be Breaking Down At Critical Price Point | Seeking Alpha

Home Market Outlook Cryptocurrency

BITO: Bitcoin ETF May Be Breaking Down At

Sungarden Investment Publishing

BITO and BITI: opposites attract me

BITO's dividend yield: don't believe it!

How I fit bitcoin ETFs into my overall investment process

Now, to the charts!

BITO versus Bitcoin price

BITO: Technical charts - this is where it gets interesting

I've owned BITO, but currently I own BITI. Here's why.

Conclusion: I own BITI, but I am always looking to own BITO

This article was written by

Sungarden Investment Publishing

As noted in the article, I own puts on BITO and am long BITI

Comments Sort by Newest

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