ETFs to Invest in Bitcoin Without Having Digital Currency
- BITO enters the scene
- BTF is your competitor
- GBTC has been on the market for some time.
- BLOK and BITQ invest in cryptomarket companies
- BITW tracks crypto index
The battle for dominance of bitcoin-tracking financial products and the cryptomarket raged when the ProShares Bitcoin Strategy (NYSE:BITO) fund began trading on October 19, 2021. The long-awaited ETF offers traders and investors the opportunity to have exposure to future bitcoin. But there are also other options correlated to crypto leader and asset class.
Competition improves the market. In 2004, James Surowiecki’s book The Wisdom of Crowds said that many are smarter than few and noted how collective wit shapes businesses, economies, societies and nations. The book applies to cryptocurrencies in several respects.
The growth of the asset class reflects the growing distrust of legal tender coins issued by governments, the value of which is derived from the faith and credit of these means of exchange. When it comes to ETFs and other trading and investment products that reflect the price action of bitcoin and other cryptos, the wisdom of the crowds will reward the top performers.
There is no shortage of asset class options for market participants. New products will continue to enter the market now that the SEC, the US securities commission, has paved the way for instruments based on futures contracts.
The most efficient products, however, may still be in development, as no current instrument holds bitcoin and other cryptos as custodian. Futures contracts, crypto mining or other similar activities are not the same as having a concrete portfolio of means of exchange of this emerging class, which challenges traditional foreign exchange products.
BITO enters the scene
BITO began trading on October 19th. The product tracks futures contracts traded on the CME. The daily chart shows volatility in the futures market since the fund’s launch on October 19th.
As the chart highlights, bitcoin futures rose from $61,905 at the opening of October 19th to a high of $67,680 on October 20th, gaining 9.3%. On the 27th, there was a correction to a low of $57,855, followed by a rebound to a high of $62,400 the following day. The fall from the high was 14.5% before the 7.9% spike.
Over the same period, BITO rose from $40.88 at the opening of Oct. 19 to $43.95 the next day, up 7.5%. BITO dropped to $37.34 on the 28th, down 15% from the high. The price rebounded to a high of $40.72, or more than 9%, on the 29th.
BITO’s main weaknesses are:
It tracks the price of future bitcoin, that is, a derivative, not spot bitcoin.
BITO and bitcoin futures on the CME are only traded during regular US trading hours. Bitcoin is traded non-stop, anytime and on any day.
BITO is a derivative of a derivative, which charges a healthy 0.95% management fee.
BITO is one of several products that market participants are using to track the leading cryptocurrency. At the end of last week, BITO had nearly $1.178 billion in assets under management and was actively trading, with more than 7 million shares changing hands as of 29 October.
BTF is your competitor
The fund Valkyrie Bitcoin Strategy (NASDAQ:BTF) started trading three days after BITO. The fund summary reads as follows:
Description: Valkyrie Bitcoin Strategy fund seeks to invest in bitcoin futures contracts.
BTF appears to be the same product as BTF and buys the same 0.95% management fee. BTF had $52.95 million in assets under management at the end of last week, with 272,400 shares changing hands on October 29th.
BTF invests in the contract with the closest bitcoin maturity at CME through a Cayman Islands subsidiary, so investors do not need to file a K-1 form with US income.
Daily BTF Daily BTF
Source: Barchart
The BTF had been shown to track future bitcoin well in its early trading sessions.
GBTC has been on the market for some time.
The Grayscale Bitcoin Trust (OTC:GBTC) has a fixed number of shares, traded over the counter. However, GBTC shares represent an indeterminate number of bitcoins.
Bitcoin futures rose from $28,800 at the end of June to a high of $67,680 on October 18th or +135%.
In the same period, the GBTC rose from US$24.00 to US$52.68, or +119.5%.
It is worth remembering that the GBTC charges a very high administration fee of 2% The GBTC had more than US$36 billion in assets under management and trades on average more than 8.5 million shares per day.
BLOK and BITQ invest in cryptomarket companies
The Amplify Transformational Data Sharing (NYSE:BLOK) and Bitwise Crypto Industry Innovators (NYSE:BITQ) funds have portfolios of companies that could benefit from the rise in cryptocurrencies.
The summary of BLOK and its main participations are:
Summary of BLOK Fund and Its Top 10 Holdings Summary of BLOK Fund and Its Top 10 Holdings
Fund Summary: The investment seeks to provide investors with a total return. It is an actively managed ETF that aims to provide a total return by investing at least 80% of its net worth in shares of companies actively involved in developing the use of transformational data sharing technologies, including non-US based companies , through deposit receipts.
At $55.47 per share, BLOK had more than $1.465 billion in assets under management. The ETF trades an average of 457,000 shares per day and charges an administration fee of 0.71%.
The BITQ summary reads as follows:
Description: Bitwise Crypto Industry Innovators seeks to deliver investment results that, before expenses and taxes, roughly match the total return of the eponymous index, which measures the performance of leading companies in the rapidly expanding cryptoeconomy.
At a price of $28.22 per share, BITQ had approximately $97.65 million of assets under management and trades on average over 108,000 shares per day. The ETF charges an administration fee of 0.85%.
BITQ movements follow those of the Bitwise Crypto Innovators 30 index. Both BLOK and BITQ can rise or fall according to the fate of companies related to the cryptocurrency and blockchain market.
BITW tracks crypto index
The Bitwise 10 Crypto Index (OTC:BITW) fund tracks the performance of the Bitwise 10 Large Cap Crypto Index, which comprises the 10 largest investable cryptos that account for 70% of the total market.
As BITW weights its shares by market capitalization, BITW accounts for 65% of its portfolio, followed by ethereum, with 25%, and cardan, with 4%. BITW had about $1.2 billion of assets under management at $50.25 per share.
The ETF charges a very high administration fee of 2.5%. On average, more than 177,000 BITW shares change hands every day.
Conclusion
BLOK and BITQ are alternatives to cryptocurrencies. BITW provides some exposure to a diversified portfolio of the most liquid cryptos. BITO and BTF track futures contracts.
The next step will be a fund similar to SPDR® Gold Shares (NYSE:GLD), which holds a portfolio with bitcoin and other cryptocurrencies. But we will have to wait until the market resolves the custody and security issue.
Jack Dorsey of Square (NYSE:SQ) (SA:S2QU34) is working on a solution that can provide regulators with a greater level of comfort, allowing them to approve funds that hold cryptocurrencies and move exactly like the spot market .
For now, the funds mentioned above are the closest route to exposure to the emerging cryptomarket, without as much volatility and at a lower cost than investing directly in bitcoin.