Is Bitcoin in a Bubble? Now You Can Bet Against it

If you believe Bitcoin is a bubble, the Horizons BetaPro Inverse Bitcoin ETF (TSX:BITI) allows you to bet against it.

| More on:

Over the past week, Bitcoin’s value has dropped 12% from $79,000 to roughly $70,000 today. Plenty of Bitcoin holders are worried, while the skeptics seem vindicated. Some believe the “Bitcoin bubble” is finally about to pop. 

Personally, I’m a Bitcoin bull. I’ve been holding it since late 2018. However, I’ve seen previous boom/bust cycles play out. On its path to global mainstream adoption, Bitcoin is likely to suffer significant drawdowns along the way. In 2021, investors may have to brace for yet another 2018-style correction in the crypto world. 

If you’re worried about the correction or skeptical about the whole space, there’s now a way for you to bet against the price of Bitcoin through an exchange-traded fund (ETF). 

Inverse Bitcoin ETF

Horizons BetaPro Inverse Bitcoin ETF (TSX:BITI) was listed in Toronto last week. As the name suggests, an “inverse” ETF offers the opposite of the daily price movements of a stock or commodity. So, if a stock rises 1%, the inverse ETF drops 1%. Similarly, if the stock drops 1%, the ETF rises 1%.  

As far as I can tell, this is the world’s first inverse ETF for crypto. BITI was listed at the perfect time, it seems. The ETF is up 12% over the past week, as Bitcoin declined 12% over the same period. For short-sellers and Bitcoin skeptics, this is the perfect tool. 

It’s better than “shorting” or betting against Bitcoin directly. That’s because an inverse ETF caps your potential losses to 100%. In other words, a short bet could have infinite risk, but you can only lose whatever you pay for an inverse ETF. 

I believe the tool could also be useful for conservative Bitcoin investors. It could help you limit the downside if the crypto market has another bust cycle like it did in 2018. It could effectively offset losses in your portfolio. 

But should you expect losses over the long term?

Bitcoin bubble predictions

The Bitcoin bubble has been talked about ever since it was launched. Bitcoin’s value has been remarkably volatile over the past 12 years. But it’s worth noting that its volatility has reduced in magnitude over time. 

In the 2013 bust cycle, the crypto lost over 90% of its value in a few months. In the 2017-2018 boom/bust cycle the maximum drawdowns were between 30% to 40%. Over the past year, the biggest drawdown has been around 25% (January 8-25). Over time, Bitcoin seems to be getting more robust. 

There’s a reason for this. Large players with deep pockets and plenty of patience have adopted the cryptocurrency in increasing numbers. Family offices, tech billionaires like Peter Thiel and tech companies like Square have added crypto to their balance sheet. These investors have much longer time horizons and are not easily perturbed by drawdowns. 

As institutional and wealthy investors add Bitcoin to their portfolio permanently, the asset should become much more stable. Over the next decade, the market should mature to a stage where BTC’s volatility is comparable to gold. 

Bottom line

You can now bet against Bitcoin. If you expect a correction in the near term, maybe you should. But over the longer term, it’s probably not the best idea. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. Tom Gardner owns shares of Square. The Motley Fool owns shares of and recommends Square.

More on Tech Stocks

stocks climbing green bull market
Tech Stocks

Why Propel Stock Keeps Going Up

Propel stock has seen a fivefold increase in its market cap in the last year! But even more is set…

Read more »

a-developer-typing-lines-of-ai-code-while-viewing-multiple-computer-monitors
Tech Stocks

Could Constellation Software Become the Next Berkshire Hathaway?

Constellation Software's (TSX:CSU) capital-allocation strategy is similar to that of Berkshire Hathaway (NYSE:BRK.B).

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy With $1,000 Right Now

These three Canadian tech stocks could be among the best growth opportunities in the market right now.

Read more »

happy woman throws cash
Tech Stocks

3 Growth Stocks That Could Be Long-Term Wealth Creators

These three growth stocks aim to grow their financials at a higher rate than the industry average, thus delivering superior…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is POET Technologies a Top AI Stock for Canadian Investors?

Canada has relatively few AI stocks, and the ones it has are different from American AI stocks in terms of…

Read more »

Rocket lift off through the clouds
Tech Stocks

2 Growth Stocks That Could Skyrocket in 2025 and Beyond

Wondering what types of stocks could rapidly rise in 2025? Check out these two stocks with substantial upside if they…

Read more »

up arrow on wooden blocks
Tech Stocks

The 3 Smartest Tech Stocks to Buy With $500 Right Now

Tech stocks can be seen as a bit risky, but these three have far less risk and more stability for…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

Shopify: A Must-Have Growth Stock for Your TFSA Now (and the Next 10 Years)

Shopify (TSX:SHOP) stock isn't just a top growth company, it's a titan worth owning in your decades-long TFSA fund.

Read more »