This article was written exclusively for Investing.com
- BITO bursts onto the scene
- BTF is a competitor
- GBTC has been around for a while
- BLOK and BITQ: crypto adjacent
- BITW tracks a crypto index
The battle for dominance in stock market products that track and the cryptocurrency asset class heated up when the ProShares Bitcoin Strategy ETF (NYSE:) began trading on Oct. 19, 2021. The much-heralded, futures-based ETF product exposes investors and traders to . Meanwhile, there are now many other choices that correlate with the leading crypto and the overall asset class.
Competition improves the market. In a 2004 work, The Wisdom of Crowds, author James Surowiecki documented examples of “why the many are smarter than the few and how collective wisdom shapes business, economies, societies, and nations.” The book applies to cryptocurrencies on many levels.
The asset class’s growth reflects the increasing distrust of the legal tender issued by governments that derive value from faith and credit in those means of exchange. When it comes to ETF and other trading and investing products that reflect the price action in Bitcoin and other cryptos, the crowd’s wisdom will reward those that perform best.
Market participants have choices in the asset class. New products will continue to come to market now that the US Securities and Exchange Commission (SEC) has paved the way for futures-based tools.
However, the most effective products may still be in development as none of the current tools or other cryptos as custodians. Holding futures, mining for cryptos, or other activities fall short of having an actual portfolio of the burgeoning means of exchange that challenge traditional foreign exchange products.
BITO bursts onto the scene
The BITO ETF began trading on Oct. 19. The product has been tracking the CME’s futures contract. The daily chart shows the volatility in the futures since the Oct. 19 launch of the fund.
Source: CQG
As the chart highlights, Bitcoin futures rose from $61,905 on the open on Oct. 19 to a high of $67,680 on Oct. 20, gaining 9.3%. They corrected to a low of $57,855 on Oct. 27 and recovered to a high of $62,400 on Oct. 28. They fell 14.5% from the high before the 7.9% recovery.
Source: CQG
Over the same period, BITO rose from $40.88 on the Oct. 19 opening to $43.95 per share on Oct. 20 or 7.5% higher. BITO declined to $37.34 on Oct. 28, a drop of 15% from the high. The price recovered to a high of $40.72 on Oct. 29 or +9%.
BITO’s drawbacks are:
- They track the price of Bitcoin futures, a derivative, and not the actual physical Bitcoin token price.
- BITO and CME Bitcoin futures only trade during hours when the US stock market operates. Bitcoin trades around the clock on a 24/7 basis.
- BITO is a derivative of a derivative, charging a healthy 0.95% management fee.
BITO is one of many other products that market participants are using to track the leading cryptocurrency. As of the end of last week, BITO had nearly $1.178 billion in assets under management and was trading actively with over 7.0 million shares changing hands on Oct. 29.
BTF is a competitor
The Valkyrie Bitcoin Strategy ETF (NASDAQ:) began trading three days after BITO. BTF’s fund summary states:
Source: Barchart
BTF appears to be virtually the same product as BITO and charges 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 Oct. 29.
BTF invests in front month CME Bitcoin futures through a Cayman Islands subsidiary, so investors do not need to file a K-1 form with the IRS.
Source: Barchart
The BTF product appears to be tracking Bitcoin futures well over the first trading sessions.
GBTC has been around for a while
The Grayscale Bitcoin Trust (OTC:) is a closed-end grantor trust, meaning it issued a fixed number of shares when it went public, and they trade in the over-the-counter market. However, GBTC shares represent an unfixed number of bitcoins.
Bitcoin futures rose from $28,800 in late June to a high of $67,680 on Oct. 18 or +135%.
Source: Barchart
Over the same period, GBTC rose from $24.00 to $52.68 per share or +119.5%.
Still, GBTC charges a very high, 2% management fee. GBTC had over $36 billion in assets under management and trades an average of over 8.5 million shares each day.
BLOK and BITQ: crypto adjacent
The Amplify Transformational Data Sharing ETF product (NYSE:) and the Bitwise Crypto Industry Innovators ETF (NYSE:) product hold portfolios of companies likely to benefit from rising cryptocurrency prices.
BLOK’s fund summary and top holdings include:
BLOK fund summary and top 10 holdings Source: Yahoo Finance
At $55.47 per share, BLOK has over $1.465 billion in assets under management. It trades an average of over 457,000 shares each day, and charges a 0.71% management fee.
BITQ’s fund summary states:
Source: Barchart
At $28.22 per share, BITQ had around $97.65 million in assets under management and trades an average of over 108,000 shares each day. The ETF charges an 0.85% management fee.
BITQ moves with the Bitwise Crypto Innovators 30 Index. Both BLOK and BITQ are crypto soup as they are likely to rise and fall with the fortunes of the companies related to the cryptocurrency and blockchain asset class.
BITW tracks a crypto index
The Bitwise 10 Crypto Index Fund (OTC:) tracks the performance of the Bitwise 10 Large Cap Crypto Index, which includes the ten largest investable cryptos that account for 70% of the total market.
As BITW weights its holdings by market capitalization, Bitcoin accounts for 65% of the portfolio, for 25%, with a distant third at 4%. BITW had around $1.2 billion in assets under management at $50.25 per share.
The ETF charges a very steep 2.5% management fee. An average of over 177,000 BITW shares changes hands each day.
Conclusion
BLOK and BITQ are pick-and-shovel plays. BITW provides some exposure to a diversified portfolio of the most liquid cryptos. BITO and BTF track the futures.
The next step will be a SPDR® Gold Shares (NYSE:)-like ETF that holds a portfolio of Bitcoin and other cryptocurrencies. However, we will need to wait until the market sorts out the custody and security issues.
Jack Dorsey’s Square (NYSE:) is working on a solution that could provide regulators with a higher comfort level to allow them to approve physical cryptocurrency ETF products that move directly with the token prices.
For now, however, the funds mentioned above are the closest route into the burgeoning asset class investors looking to dip a toe into the crypto market have, without the extreme volatility or cost outlay involved with owning Bitcoin.
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