Summary BITO has underperformed spot Bitcoin ETFs due to higher fees and less efficient capital retention, despite robust demand for Bitcoin exposure via ETFs. Bitcoin's supply is in a significant issuance deficit, driven by strong ETF and corporate demand, but offset by long-term holders selling into higher prices. While BITO offers futures-based exposure suitable for some investors, spot and leveraged ETFs are better options for maximizing returns. Given current market dynamics and elevated prices, I remain cautious on Bitcoin's short- to medium-term outlook despite strong fundamental demand. With a 'buy' rating, I last wrote about the setup for the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO ) for Seeking Alpha back in January. At that time, I focused on seasonality trends and on-chain signals that I felt were indicative of conditions generally seen with further increases in Bitcoin's ( BTC-USD ) price. Data by YCharts As expected at that time, Bitcoin and BITO (by extension) have both outperformed the broader equity markets. More recently, I've taken more of a cautious view of the top digital asset in the market. In this update, we'll look at Bitcoin's supply story since ETFs launched in the US as well as BITO's under-performance relative to BTC. Bitcoin Supply: Surplus, Deficit, or Neither? It has been well-covered by myself and other analysts on SA at this point, but it must be repeated as it remains the largest risk to BTC from where I sit; Bitcoin's success as an investment vehicle has been driven mainly by the belief that it is the 'digital version of Gold' rather than by any meaningful growth in usage over these last several years. 30 Day Averages (CoinMetrics) In fact, the coin's 'adoption' when measured by things like active users and USD-denominated transferred value is actually below highs from 2021 and 2022. Still, whether its manufactured digital scarcity or not, BTC is in limited supply and demand for the asset through traditional financial products has been robust. The investment demand for BTC over the last 19 months has helped put the network in a massive supply deficit relative to token issuance due to Bitcoin's fixed supply and declining emissions. Since the start of 2024, new BTC issuance has totaled just 318.5k coins. ETF Supply Deficit (Author's Chart, IntoTheBlock) While August is admittedly experiencing the largest ETF-driven surplus in over a year as calculated with IntoTheBlock data, the trend over the last 19 months is quite bullish BTC. Since the start of January 2024, more than 700k BTC have gone to the ETF products alone. Thus, BTC is theoretically in an issuance deficit just from the ETFs alone. Holding Entities 12/31/2023 8/10/2025 Change % Private Companies 263,511 292,375 28,864 11.0% Governments 90,553 526,543 435,990 481.5% DeFi/Smart Contracts 159,252 242,470 83,218 52.3% ETFS/Funds 769,036 1,470,180 701,144 91.2% Public Companies 360,389 1,045,823 685,434 190.2% Total Holdings 1,642,741 3,577,391 1,934,650 117.8% Source: BitcoinTreasuries When factoring in the 685k increase in BTC holdings from public companies, the primary two drivers of BTC accumulation over the last 19 months have put the network in a 'new supply' deficit that exceeds 1 million coins. The government holdings data in the table above is a bit misleading for two reasons. First, most of the coins accumulated by government entities have actually been held for longer than 19 months and were only recently recognized through Bitcoin Treasuries. Second, government coins aren't always 'purchased' and can be seized due to unlawful activity - both of these factors are true for the 198k coins obtained by the US government. But if we take these numbers at face value, the official entity holdings growth since the start of 2024 is nearing 2 million coins when accounting for governments, private companies, and DeFi protocols. It is worth mentioning that 64% of public company BTC holdings growth over that time frame has come from Strategy ( MSTR ). Regardless, the demand is real and new supply is limited. All this said, even with price re-rating higher, supply does have to come from somewhere and the data would imply large long term holders might be the ones serving coins to investors. BTC Whole-Coiners (CoinMetrics) After hitting 1 million in May 2023, 'whole-coiner' addresses have fallen back below that level and are currently 4% off from the 1.024 million address high at the start of 2024. More importantly, long term holder supply - or coins that haven't moved in over a year - has been in decline since the beginning of 2024: HODLer Balance (IntoTheBlock) The chart above shows a decline in 'HODLer' balance that might explain who has been selling BTC to Strategy and the ETF issuers. The HODLer balance of 12.1 million at the end of August 10th is down 12% - nearly 1.7 million BTC - from 13.8 million BTC at the start of 2024. So lets take all of these numbers together; 1.7 million BTC out of HODLer wallets and 318k BTC from new coin issuance gives us roughly 2 million BTC since the start of 2024. Over that time, Bitcoin Treasuries calculates Government, DeFi, ETF, and corporate holdings growth of just under 2 million - a nearly perfect equilibrium. Like Gold, there is plenty of Bitcoin to go around. The only question is the price required to move it. BITO's Under-performance Since the beginning of spot ETFs in the United States, BITO has experienced rather significant under-performance. While certainly impressive at 127% in 19 months, compared to the Fidelity Wise Origin Bitcoin Fund ( FBTC ), the total return of BITO lags the spot ETFs by over 20%. Data by YCharts We also see the fund has failed to return to its all-time high market cap of $3.2 billion back in March 2024 even though the price of the coin itself has essentially doubled since that period. BITO Market Cap (Seeking Alpha) The fund size doesn't necessarily have an impact on total return. Though I do think a market cap lower than March 2024 levels is indicative of a product that is losing market share to alternatives. I see two primary factors driving this. First, the 0.95% expense ratio doesn't exactly make BITO a cheap way to get BTC exposure when spot funds can be purchased for less than 20 basis points. Second, the monthly dividend payouts aren't necessarily re-invested back into the fund. Spot ETFs that don't pay dividends perhaps have an easier time keeping that capital under management. Closing Summary While BITO is not the product I would personally use to get exposure to BTC, it does have its benefits. For those who would rather see Bitcoin be used the way it was initially intended, funds that utilize futures contracts rather than holding the underlying asset might be a more palatable way to get exposure through something like a retirement account. However, if maximizing returns is all that matters, spot or even leveraged ETFs might be considered by investors/traders as well. Fundamentally, the demand for BTC from ETF buyers and treasury companies has been enormous and quite impressive over the last two years. Given the issuance 'supply deficit,' that demand has been reconciled by higher prices. Those higher prices have often seen supply leave HODLer wallets. There is nothing necessarily wrong with HODLer wallets selling, but it can be indicative of a market that currently has more supply in the hands of holders with less conviction. We can't really know that for sure at this point. But at $120k per coin, I'm much more cautious BTC over the short to medium term.