Summary ProShares Bitcoin ETF is not an income fund; its distributions are highly variable and not directly tied to bitcoin price movements. BITO's recent distribution cuts reflect management's discretion, tax-driven timing, and the need to avoid further NAV erosion after significant losses. Distributions are primarily determined by annual profit/loss recognition at the subsidiary level, with flexibility to adjust payouts throughout the tax year. Expect continued low distributions unless Bitcoin rallies significantly, as management balances NAV preservation against potential AUM declines. I last wrote about the ProShares Bitcoin ETF ( BITO ) in January and warned that it is not an income fund. Of course, with a headline 77% yield, it was widely regarded as one, but that was not the fund's intended strategy, and there was a risk of distributions drying up as Bitcoin ( IBIT ) dropped. Since that article, the last three monthly dividends have taken a huge dive. The April payout was only $0.0061, which is less than 1% of the December payout of $0.7432. Seeking Alpha This article looks at what is behind the massive cut and what could happen over the rest of 2026. BITO Strategy With income ETFs all the rage in recent years and 100% yields not uncommon, BITO may be mistakenly grouped alongside these ETFs. Despite the significant drop in recent payments, its headline TTM yield is still 73%. However, BITO is different — it does not use an options overlay to boost yield, and its distributions derive from profits in bitcoin derivatives such as futures and swaps. It was never intended to be an income fund. Due to its holdings, BITO also has a large holding in money market funds, which are used as collateral. This pays interest and likely accounts for the recent small distributions. The Variable Distribution BITO primarily gains exposure to bitcoin through futures contracts. As per the prospectus: Bitcoin Futures Contracts – Standardized, cash-settled bitcoin futures contracts traded on commodity exchanges registered with the Commodity Futures Trading Commission (“CFTC”). The Fund seeks to invest in cash-settled, front-month bitcoin futures. Here are the current holdings, which show April futures. Proshares The futures positions are rolled each month, and the assumption is that any profits are distributed. On the other hand, if there is a loss, no distributions would be made. However, it is not quite as simple as that, and there is no strong correlation between a monthly gain/loss and the next distribution. This is illustrated by the two charts below, which show bitcoin fell in five months in a row from October 2025, but distributions remained large and only fell in February. Coinglass Seeking Alpha Also note that the two red months in early 2025 did not lead to a missed dividend. The distribution did fall by about 50%, but payments continued. How was BITO able to do that? Distribution Size is a Decision Made by the Fund There are two points to make about the imperfect relation between bitcoin's monthly gains and subsequent distributions. Firstly, futures contracts need to be rolled before the settlement dates. For CME bitcoin futures, that is the last Friday of the month. So the monthly bitcoin gain/loss is not an exact reflection of the gain/loss on any particular monthly contract (but it's usually pretty close). Another reason for the discrepancies comes from factors like contango or backwardation when the contract is rolled. As per the prospectus: ...when a bitcoin futures contract is nearing expiration, the Fund will “roll” the futures contract, which means it will generally sell such contract and use the proceeds to buy a bitcoin futures contract with a later expiration date. When rolling futures contracts that are in contango, the Fund would sell a lower priced, expiring contract and purchase a higher priced, longer-dated contract. The price difference between the expiring contract and longer-dated contract associated with rolling bitcoin futures is typically substantially higher than the price difference associated with rolling other futures contracts. However, these factors account for only minor differences between bitcoin price movements and subsequent distributions. The main reason is that profits/losses are not recognized each roll but at the end of the year. As per the ProShares site: Each of the Funds gets exposure to oil or crypto futures contracts, or swap on a commodity or crypto index or an index of futures contracts, as applicable, by investing in a wholly owned subsidiary which, in turn, invests in such futures contracts or swap agreements. For tax purposes, each Fund recognizes any net income of its subsidiary, including gains on such futures contracts or swap agreements in which its subsidiary invests, as an ordinary dividend on the final day of the subsidiary’s tax year. The final day of the tax year in 2026 will be September 30th. Up until that time, the fund has a lot of flexibility to adjust distributions depending on what it thinks the annual profit/loss will be at the end of the year. The amount of each Fund’s monthly dividend distribution (if any) is intended to estimate the Fund’s current required calendar year distribution allocated equally over the remaining months of the calendar year. It is important to remember that the dividend distribution amount for each Fund may change significantly from month to month. In some months, a Fund may not make any dividend distributions at all. For example, a Fund may not make distributions if its subsidiary has had significant recent losses or if the distributions previously paid by the Fund have already covered the Fund’s expected required calendar-year dividend distribution. That flexibility means the fund may overestimate (overpay) dividends through some periods. It can be seen by the NAV erosion through 2024 and 2025 even when Bitcoin rallied and total returns were positive. The fund paid out more than it made. Data by YCharts Just to clarify, the NAV and total return were almost identical in 2022 because BITO did not pay any dividend. That's also the case in 2026 since the distributions have been tiny. Data by YCharts Implications for the Distribution The current tax year started on October 1st, 2025, which means there has been a large loss in the period so far. Data by YCharts As already shown, the fund made payments in October through January and only cut in February. That resulted in NAV erosion. Data by YCharts While bitcoin posted a small gain in March and is doing well in April, that won't necessarily mean the fund managers will be confident enough to raise the distributions again. Remember, BITO is actively managed, so the payments depend on their decisions and outlook. I think they may be cautious over the coming months, as raising it too soon risks more NAV losses. That said, keeping it at these levels could lead to more losses in AUM, so they will have some difficult decisions to make. Data by YCharts Of course, a rally in Bitcoin would make their decision much easier. Bitcoin Outlook Bitcoin has been making higher lows since February and held up well during the stock (SPY) drop throughout March. You could say it acted somewhat as a safe haven, and there may also be an element of it hedging against inflation as investors fear a second wave of inflation brought on by elevated oil prices. Most of all, though, I think bitcoin was oversold. The final capitulation came when gold and silver crashed - not because of anything related to Bitcoin, and they all found support around the same time in early February. When we look at the Bitcoin chart, the recovery does not yet look convincing in the context of the preceding drop, and there is an active head and shoulders pattern with a target way down at $34 thousand. The pattern looks similar to the last major top in 2021. Tradingview What worries me most is the relative weakness compared to other assets such as stocks. The S&P 500 has just ripped to new all-time highs, showing risk appetite is strong, but Bitcoin is still languishing. While it could recover to test the head and shoulders neckline around $85 thousand, I'd need to see higher highs above $98 thousand as well as higher lows before I would be confident of a new uptrend. Assuming Bitcoin reaches $85k and either turns lower or just moves sideways, BITO's NAV for the 2025-2026 period would still be negative. Distributions are therefore not guaranteed, and while I would expect management to deliver some payments, they may stay small and below the $0.74 paid out in December. Short-term, taking advantage of a rally to $85k would be better with a low-cost ETF like the iShares Bitcoin ETF ((IBIT)). It outperforms BITO in the majority of periods and timeframes due to BITO's complex structure and expenses. Data by YCharts Bitcoin futures are in contango, as the May contract is trading around $200 higher than the April contract, so the roll decay will drag on NAV. This contango is likely to continue as long as Bitcoin stays steady, and backwardation is only usual during steep sell-offs. Conclusions The distribution cuts this year underline the point I made in my last article: BITO is not an income fund. The monthly distributions are variable and are decided by management based on annual distribution levels for tax reasons; they do not necessarily reflect the bitcoin price movements in the previous months. After three tiny payments this year, and after some recovery in the bitcoin price, management may decide to make some higher distributions in the months to come. However, I suspect they will remain at low levels until Bitcoin rallies significantly, as they risk eroding NAV even further.
