"The ProShares Ultra Bitcoin ETF (NYSEARCA:BITU) launched in April 2024 promising twice Bitcoin's daily return. That sounded appealing when Bitcoin climbed toward $105,000 in November 2025. But as Bitcoin fell below $88,000, BITU investors discovered the harsh reality of leveraged crypto exposure. The fund collapsed 37% year-to-date through late December, significantly worse than Bitcoin's 17% decline from its peak. Understanding why it underperformed so dramatically matters more than timing the bottom."
"BITU doesn't own Bitcoin directly. It uses Bitcoin futures contracts to create 2x leverage, and those futures trade in contango when near-term contracts are cheaper than longer-dated ones. Every time BITU rolls expiring contracts into new ones, it sells low and buys high, creating persistent drag called roll decay. This wasn't a problem during Bitcoin's 2024 rally when positive momentum overwhelmed friction costs. But in choppy or declining markets, contango becomes an anchor."
"BITU resets its 2x leverage every single day, creating volatility decay. If Bitcoin drops 10% one day and rises 10% the next, you don't break even. The math: a $100 investment in Bitcoin falls to $90, then rises to $99. But BITU's 2x exposure drops to $80, then recovers only to $96. That 4% gap is volatility decay, and it compounds relentlessly."
BITU delivers 2x daily exposure via Bitcoin futures rather than holding spot Bitcoin, exposing investors to roll decay when futures trade in contango. Each contract rollover can create a sell-low, buy-high drag that erodes returns, especially in sideways or declining markets. Daily leverage resets produce volatility decay, where symmetric price swings reduce compounded returns versus spot exposure. During Bitcoin's late-2025 decline, these mechanics amplified losses so BITU fell far more than Bitcoin. Monitoring the CME futures term structure and contango/backwardation dynamics is essential for assessing leveraged futures ETF risk.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]