Bitcoin, the largest cryptocurrency by market value, is on a torrid pace of late, surging more than 16% over the past week amid speculation that the Securities and Exchange Commission (SEC) could finally sign off on a spot bitcoin exchange traded fund.
Some experts believe such approval, which amounts to one of the most widely anticipated events in ETF industry is history, is just months away. It remains to be seen if this is a buy the rumor, sell the news type of event, but some things aren’t up for debate. First, a spot bitcoin ETF would clearly – it already is – benefit the digital currency’s price.
Second, such a product in the U.S. would likely bring a slew of new participants into the crypto market because some retail investors have been reluctant to embrace crypto due to technological concerns. Said another way, a spot bitcoin ETF could democratize the asset class and there’s precedent for happening – one set by god ETFs.
While crypto enthusiasts and ordinary investors wait on word from the SEC, some of the following ETFs could be worth considering.
Bitwise Crypto Industry Innovators ETF (BITQ)
The Bitwise Crypto Industry Innovators ETF (BITQ) is an equity-based fund, but it’s chock full of stocks that fit the bill as “crypto-correlated.” BITQ, which follows the Bitwise Crypto Innovators 30 Index, is proving as much as highlighted by a gain of 9.28% over the past week.
As Bitwise itself notes, BITQ’s roster consists of “picks and shovels” players in the crypto space, including the likes of Microstrategy (MSTR) and crypto exchange operator Coinbase (COIN). Much of the rest of the ETF’s lineup consists of crypto miners – a group highly tethered to bitcoin’s price action. But there’s more to the story. A recent report by JPMorgan indicates some bitcoin miners are making strides in the artificial intelligence (AI) due to native supercomputing capabilities.
“In these beta tests, miners are reporting high profitability per unit of power consumption, much above the profitability from bitcoin mining. With bitcoin miners having already secured more than 100MW of long-term contracts with their power grids, if the profitability reported in beta tests is able to be repeated in large scale it would overshadow in the future the revenues coming from bitcoin mining at the moment,” noted the bank.
ProShares Bitcoin Strategy ETF (BITO)
One of the original futures-backed bitcoin ETFs, the ProShares Bitcoin Strategy ETF (BITO) remains pertinent today because bitcoin futures are, of course, levered to the underlying asset’s price movements. To its credit, BITO, which turned two years old last week, has done a solid job of tracking spot bitcoin prices since inception.
It goes without saying that BITO would benefit (it already is) from approval of a spot bitcoin ETF, but there are more chapters in this book. Importantly, recent data indicate bitcoin’s correlation to stock is declining, but its correlation to gold is increasing. That fortifies the “digital gold” thesis.
“We [view]bitcoin as an investment being a non-sovereign store of value which had potential exposure to economic and internet growth, whilst being largely uncorrelated to other asset classes,” according to CoinShares. “We also find that in the context of a portfolio, it behaves in a similar manner to other alternative assets in providing diversification, with the exception that its portfolio diversification benefits are far greater than its competitors.”
VanEck Ethereum Strategy ETF (EFUT)
As its name implies, the newly minted VanEck Ethereum Strategy ETF (EFUT) isn’t a bitcoin ETF. Rather, it’s focused on ethereum, the second-largest cryptocurrency behind bitcoin. EFUT is one of several new futures-based ethereum ETFs that recently came to market, indicating regulators are warming to non-bitcoin crypto fare in the ETF wrapper.
That could be one sign that if a spot bitcoin ETF is approve, there could be trickle-down effects to fund such as EFUT. Even if that scenario doesn’t come to fruition, ethereum offers investors an attractive fundamental story unto itself.
“Ethereum’s limited space is managed through fees charged to users for conducting business and value exchange,” according to VanEck research. “This software is globally hosted and utilizes a protocol to establish a unified understanding of ownership, commercial activity, and business logic. It enables users to conduct commerce without the need for trust in participants or counterparts. Essentially, Ethereum’s core business revolves around selling secure, immutable blockspace that powers internet commerce.”
