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Physical representations of the bitcoin cryptocurrency are seen in this illustration taken October 24, 2023. REUTERS/Dado Ruvic/Illustration Acquire Licensing Rights

Oct 24 (Reuters) - The ProShares Short Bitcoin Strategy ETF , which allows traders to bet on a fall in bitcoin futures, hit a record low on Tuesday as the cryptocurrency surged on growing optimism that the launch of an exchange-traded fund tracking bitcoin is imminent.

Bitcoin, the world's largest cryptocurrency, hit an 18-month high on Tuesday, extending Monday's 10% surge, on speculation over the likely approval of a spot bitcoin ETF that was fueled by BlackRock's iShares ETF listing on the website of clearing house DTCC.

The ProShares fund had hit its peak of $45.61 a little over a year ago as crypto assets tumbled following the collapse of FTX, but struggled to hold on to gains this year amid the sharp recovery in bitcoin.

The fund fell nearly 10% to $16.18 in early trading, hitting a record low, and has shed 59.3% so far this year.

The ProShares Short Bitcoin ETF, which has $62.98 million in net assets, is still on track for its second month of inflows, according to Lipper data, as investors continue to pile into the fund even as prices fall.

"A lot of people think this rally is a short squeeze - we have no real news coming out and a lot of anticipation around the SEC's approval or disapproval of these spot ETFs and people are getting ahead of themselves," said Lucas Kiely, chief investment officer at digital wealth platform Yield App.

"Ultimately, the market is again buying the rumor and selling the fact and the BTC short ETF is the only way for investors to express the view BTC is going to sell off."

Kiely added that people could also be trying to hedge their bitcoin. "They've seen a price pump that they want to lock in so they buy the ETF to hedge their position."

Meanwhile, other bitcoin-linked ETFs, like the ProShares Bitcoin Strategy ETF that tracks bitcoin futures, and Valkyrie Bitcoin Miners ETF (WGMI.O), gained more than 9% each.

The Valkyrie Bitcoin and Ether Strategy ETF (BTF.O) was up 9.4%, leading gains among recently launched funds that track Ether futures.

Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by David Holmes

Our Standards: The Thomson Reuters Trust Principles.

Bansari reports on the global financial markets and writes Reuters' daily flagship market reports on equities, bonds and currencies. An economist by training and winner of the Arthur MacEwan Award for Excellence in Political Economy, she has written for renowned global papers and magazines including The Diplomat, Boston Globe, Conversation, Huffington Post and more.

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Fund tracking inverse of bitcoin futures hits all-time low as cryptocurrency rallies - Reuters