Summary BITU's long-term decay and daily rebalancing make it unsuitable for long-term holding; best used in sustained BTC uptrends. BTC's technical indicators show potential bullish signs if it can maintain above the 20-week moving average. Capital flows into BTC are strong, making up 94% of total crypto capital flow in 2024, indicating market preference. Seasonality favors BTC in October, historically its best month, but caution is advised as past performance isn't indicative of future returns. Back in early-May, I initiated coverage of the ProShares Ultra Bitcoin ETF ( BITU ) with a "sell" rating. Like most other 2x ETFs that I've covered, my primary reason for calling BITU a sell was due to the long term decay of leveraged ETFs like BITU. In this update, we'll look at some of my takeaways from Bitcoin's ( BTC-USD ) chart, capital flow, and any signals we can pull from history to help form our view on BTC today. Risks Right Out of The Gate I won't rehash the entire risks section from my previous article. 2x ETFs are riskier than standard ETFs because they are rebalanced daily to meet their 2x goal. In theory, if Bitcoin's price improves by 2% in a single session, BITU should increase by 4%. The same is true when Bitcoin declines. However, chop will erode the fund overtime. Thus, BITU buyers will benefit more when BTC is in a sustained uptrend rather than enduring several months of sideways like we've experienced the last six months or so. Data by YCharts The chart above shows the performance of BITU against both BTC and the index since my first article covering the ETF. Not only are Bitcoin and BITU both well behind the SPDR S&P 500 ETF ( SPY ) over the last few months, but BITU is already behind Bitcoin even though it's designed to double daily BTC returns. I think this makes the point quite clearly that BITU is not recommended for long term holding. But that doesn't mean there isn't a time and a place for BITU positions if the right set up is present. Technical Picture In May, I highlighted how BTC likely had a date with key moving averages. Today, we find the coin in a far different situation than it was 4 1/2 months ago. BTC Daily Chart (TrendSpider) The first thing I want to point out is the coin did indeed test the 200 day moving average following my May article. The bad news for bulls is that line has since flipped from support to resistance. Additionally, the 50 and 100 day MAs both crossed below the 200 back in August the trend in those MAs is clearly down. The 200 MA trend has also been signaling a trend turn over the last week or so. But as I'm reading it, bulls are indeed trying to take control back: BTC Weekly Chart (TrendSpider) Two of the MAs I've been focused on with Bitcoin for some time are the 8 week and 20 week moving averages. BTC is currently ahead of the 20 week MA though it remains to be seen if it can hold more than one or two consecutive weekly closes above that line. We're on week 2 at the moment. We've seen a few attempts at regaining that MA fail in recent months. But in my view, if BTC can flip the 20 week to support rather than resistance, it'd be a very positive sign and a potential indication that BTC is ready for the next leg up. Capital Flow Story US ETF Supply (Author's Table, BitcoinTreasuries.net) As it is for all asset classes, capital flows have proven to be important for Bitcoin. Particularly since the approval of spot ETFs in the United States earlier this year. Those funds have seen about 255k BTC of positive net flow come into the traditional financial system via the ETF wrapper even adjusting for the Grayscale 'fee flight.' Crypto Flows By Asset (CoinShares) While the month to date flow story has been a bit back and forth in September, Bitcoin's YTD capital investment flow of $21 billion in 2024 is responsible for 94% of the total crypto capital flow this year. Furthermore, BTC makes up 82% of the total AUM in the crypto investment product industry. It seems clear the market likes BTC far more than anything else in the cryptocurrency industry. Seasonality & Additional Considerations I've pointed it out in a handful of other articles as well but it bears repeating here; seasonality for Bitcoin is positive as we head into October. Going back the last decade, October has the highest positive return rate of any month as the coin generates full month positive returns in 80% of the Octobers since 2014. BTC Seasonality (TrendSpider) But beyond that, the mean change in the month is 19.1%. This is the highest mean change of any month during the year for BTC. The point is, if history is any guide, October should be a good month for Bitcoin. Now, it's important to caveat this with the old adage: past performance is not indicative of future returns. Look no further than September 2024 for an instance of Bitcoin bucking it's historical trend. September is not historically one of Bitcoin's better months, its actually typically one of the con's worth months. And yet, BTC is currently up over 7% this month and 2024 is on pace to produce the second best September for BTC going back the last 10 years. Point is, history is a useful tool but it doesn't mean we have any degree of certainty as to what the coin will do. 30 Day Pearson (TheBlock) Finally, the chart above shows the 30 day correlation between BTC, the Nasdaq, the S&P 500, and Gold. Not only are we seeing a tightening of these correlations, but they're all headed higher - indicating a higher positive correlation between the assets. In light of the Federal Reserve recently cutting Fed Funds by 50 basis points, the market seems to be preparing for a return to easing and asset price inflation. Final Takeaways BTC vs Fear & Greed (TrendSpider) I'm upgrading BITU from 'sell' to 'hold' because I'm getting the feeling the market wants to go higher. Crypto fear and greed has been steadily rising for weeks, BTC's failed tests of 200 day MA aren't resulting in a rapid price decline as we saw in August. Rather, BTC seems to be knocking on the door. The weekly chart gives some reason for cautious optimism with a coin now ahead of the 20 week MA. Though choppy lately, capital flows have been positive all year, seasonality looks terrific, and all markets seem to be rising together in a long term bet against the dollar. Of course, if you like the setup in BTC, you can just buy BTC. Despite the upgrade, I still won't recommend holding BITU for longer than a few weeks, at most.
