Why Bitcoin Futures ETFs Like BITO Are Structurally Unattractive for Long-Term Investors

The rise of Bitcoin exchange-traded funds (ETFs) has offered investors new avenues to gain exposure to the cryptocurrency market. However, not all Bitcoin ETFs are created equal. Futures-based ETFs like the ProShares Bitcoin Strategy ETF (BITO) face inherent structural challenges that make them unsuitable for long-term investors. In contrast, spot-based ETFs such as the iShares Bitcoin Trust (IBIT) offer a cleaner, more cost-efficient path to Bitcoin exposure. This analysis examines BITO's underperformance, contango drag, and structural inefficiencies, while highlighting why spot-based alternatives are better positioned for 2026 and beyond.

Structural Inefficiencies: Futures vs. Spot

BITO's structure is fundamentally different from spot-based ETFs like IBIT. BITO invests in Bitcoin futures contracts rather than holding Bitcoin directly, introducing operational complexities and higher costs. According to a report by , . This disparity stems from the added management required to roll futures contracts and navigate market dynamics. Spot-based ETFs, by contrast, directly hold Bitcoin, eliminating intermediary processes and reducing overhead.

The structural inefficiencies of BITO are compounded by its exposure to contango-a market condition where futures prices trade at a premium to spot prices. During periods of contango, BITO incurs losses when rolling over expiring contracts, a process that erodes returns over time. For example, in December 2025, , underscoring the drag from futures market mechanics. Over the year-to-date period in 2025, , highlighting the compounding effects of contango and structural costs.

Cost Over Time: The Compounding Drag

The expense ratio is not the only cost to consider. BITO's futures-based model introduces hidden expenses tied to contract rollovers and market volatility. notes that BITO's 0.95% fee, combined with contango drag, creates a "double bleed" for investors. In contrast, , with no additional costs from futures trading according to Mezzi.

Long-term investors are particularly vulnerable to these inefficiencies. For instance, BITO's underperformance in bull markets-where contango is more pronounced-has widened the gap between its returns and Bitcoin's spot price. While BITO introduced monthly dividends in February 2023 to offset some losses, this strategy only reduced the performance gap from 13.8% to 2.6% in the first five months of that year. Structural challenges remain unresolved, making BITO a poor fit for extended holding periods.

Tax Treatment and Tracking Accuracy

Another critical distinction lies in tax treatment. BITO benefits from the 60/40 tax rule under , where 60% of gains are taxed at long-term capital gains rates. However, this advantage is offset by the unpredictability of futures-based returns. Spot-based ETFs, on the other hand, are taxed like traditional equity investments, offering more predictable outcomes.

Tracking accuracy also favors spot-based ETFs. BITO's reliance on futures contracts can lead to deviations from Bitcoin's spot price, particularly during volatile periods. In contrast, ETFs like IBIT mirror Bitcoin's price more consistently, minimizing tracking errors. For investors seeking direct exposure to Bitcoin's price movements, this precision is invaluable.

The Case for Spot-Based ETFs in 2026

As 2026 unfolds, the structural advantages of spot-based ETFs become increasingly compelling. Lower fees, accurate price tracking, and the absence of contango drag position ETFs like IBIT as superior long-term options. BITO, while potentially useful for short-term traders or tax-optimized strategies, remains structurally disadvantaged for extended holdings.

Investors should prioritize cost efficiency and alignment with Bitcoin's spot price when allocating capital. The compounding effects of BITO's inefficiencies-exacerbated by contango and higher fees-make it a suboptimal choice for those with a long-term horizon.