This means the only difference between a Bitcoin physical ETF and a Bitcoin futures ETF is where their prices are derived. Much of the financial plumbing required for Bitcoin to be a legitimate macro asset class was built in the last bear market. If MicroStrategy wanted to buy billions of dollars worth of Bitcoin just a few years ago, it might have been exceedingly difficult to do so. Now, however, both the infrastructure and the liquidity are in place to make such sizable investments possible. When people talk about Bitcoin ETFs, they’re usually referring to ETFs on the US markets. For example, the first Bitcoin ETF, the Purpose Bitcoin ETF, was launched on the Canadian stock market and trades on the Toronto Stock Exchange under the ticker BTCC.
MSTR has a Price to Sales (P/S) ratio of 7.1, which is at par with the average P/S of 7.14 for the software industry (system & application), according to industry data compiled by NYU Stern Professor Aswath Damodaran. In addition, it needs to be pointed out that with an ETF, you are paying a management fee for the portfolio rebalancing that needs to occur on a regular basis. Currently, the expense ratio for the Valkyrie Bitcoin Miners ETF is 0.75%, which is generally considered to be a good ETF expense ratio. However, every dollar paid out in management fees is a dollar whose value is not compounded over the long haul. Still, Gensler has looked to set a precedent for tighter regulation of the crypto industry, particularly in the wake of FTX’s collapse in late 2022. This year, he’s entered into legal fights with other big-name platforms, like Binance and Coinbase and warned markets this summer that the sector was still “rife with fraud.”
Bitcoin ETFs provide investors with indirect exposure to Bitcoin (BTC-USD). The third part of the process is stock screening to eliminate additional companies. For example, if the average daily trading volume over the past three months is less than $2.5 million, it’s out. If a company’s free float is less than 10% of the outstanding shares, it, too, is excluded. Like most indexes, the minimum market cap to be included is $300 million. Lastly, if a stock doesn’t have 30 days of trading history over the past 50 trading days, it’s also excluded.
This exposes the fund to rollover risk, notably when the futures curve is upward sloping (an upward sloping futures curve is said to be in “contango”). “The Bitwise 10 Crypto Index Fund is an open-ended, publicly traded statutory trust, not an exchange-traded fund or closed-end fund,” Bitwise Asset Management stated in December 2020. “Accredited investors may create shares of the Fund at net asset value (NAV) through private placement. Those restricted shares may then become eligible for public sale after a 12-month holding period.” Judge Neomi Rao said the SEC’s decision to approve two bitcoin future ETFs but reject the application for the spot market fund was “arbitrary and capricious.”
The OSC approved the launch of the first Bitcoin ETF in Canada on February 12th, 2021. This saw Purpose Bitcoin ETF (BTCC) launch a week later on the 18th, managed by Purpose Investments. Technically, Alexander elder this was the world’s first Bitcoin ETF, considering that several similar products offered in Europe are referred to as ETPs and ETNs standing for exchange-traded products and notes, respectively.
This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. There is no guarantee that past euro vs.dollar history performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions.
The ETF has 48 holdings at present, the top 10 of which account for about 40% of its assets. The rapid rise and fall and rise of cryptocurrency prices over the past three years have undoubtedly hurt the industry’s growth – and sparked volatility across many bitcoin and crypto ETFs. After all, even the best fund isn’t going to perfectly track the crypto’s price since there are fees built into ETFs to pay for management. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Bitcoin and other cryptocurrencies have proven themselves to be an extremely volatile asset class, capable of wide price swings in short periods of time.
Most traditional brokerage firms don’t support cryptocurrency trading, so an account needs to be opened with a crypto trading exchange. Additionally, there’s the matter of storing forex trading signals software crypto, which requires use of a crypto wallet. Bitcoin ETFs don’t own Bitcoin because the SEC is concerned that BTC is traded on non-regulated cryptocurrency exchanges.
Investors buy shares in the ETF through whatever brokerage they buy stocks, and can trade them the same way they’d trade shares in Apple or Tesla. We’ve included a list of Bitcoin ETFs approved for trading by the SEC with AUMs of $10 million above. Every investor is in a unique position with their own unique investment goals and needs. The best Bitcoin ETF for each investor can only be determined through individual research. Since inception, Bitcoin prices have soared to more than $60,000 per coin and subsequently dropped below $19,000.
This buy-and-hold approach has defined MSTR’s Bitcoin’s strategy since inception 3 years ago, explaining the strong correlation between Bitcoin’s price return and MSTR’s return over this period. As the chart below illustrates, Bitcoin has returned 149% in the past 3 years vs. MSTR’s 117%. From my perspective, though, the trade-off between diversification and returns is one worth taking. Instead of having to compare each Bitcoin mining stock against the other in order to find the “winner,” I can simply buy one fund and let it do all the heavy lifting. All I have to do is find a fund that invests in several of the top Bitcoin mining stocks. The trade-off for diversification, though, is returns well below the hottest single stocks.
SEC Chair Gary Gensler is on the record stating that given the novel character of cryptocurrency, relying on the proven and highly regulated futures market is a much safer approach for Bitcoin exchange-traded funds. The addition of a bitcoin ETF would expand the pool of available options to U.S. investors. Recently, news that asset management giant BlackRock could be filing for an ETF application have renewed interest and optimism that a spot bitcoin ETF could be approved in the U.S.
You should also consider if you’ll want to transfer your Bitcoin off of your exchange to a separate hot or cold crypto wallet. If that’s the case, you’ll likely be on the hook for withdrawal fees, which are typically pretty small but vary by exchange. This is less than you would pay over the course of a year when you invest in a Bitcoin ETF, which all charge at least 0.65% per year. Things may be about to change, however, as Canada’s financial regulator, the Ontario Securities Commission (OSC), recently approved the world’s first two bitcoin ETFs in quick succession. The Purpose Bitcoin ETF (BTCC) and the Evolve Bitcoin ETF (EBIT) are both physically settled ETFs and have applied to be listed on the Toronto Stock Exchange. TradeBlock, a CoinDesk subsidiary, is the index provider for the Purpose ETF.
MSTR is an enterprise software company that has been providing business intelligence products and services for decades. MSTR employs about 2000 employees, including engineering teams that work in its core product. If you are new to crypto investing, diversification could be a great way to reduce your risk. By holding a basket of Bitcoin miners, instead of just the “best” Bitcoin miner, you get access to more diversification as well as protection against a crypto downturn. You lose some upside, but you’re not forced into picking a winner. Instead of trying to choose a winner in the hyper-competitive Bitcoin mining sector, it could make sense to invest in an ETF that covers the broader Bitcoin mining market.