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ETF Wrap: Is a new ‘crypto’ fund the long-awaited bitcoin ETF in disguise

Hello, again: Thanks for all the feedback from last week’s ETF Wrap. Please, keep it coming.

The Holy Grail for crypto enthusiasts has been a pure-play exchange-traded fund investing in crypto. It doesn’t seem that we’re any closer to getting one, at least before the end of 2021. Gary Gensler, as the new chairman of the Securities and Exchange Commission, seems intent on ensuring that investor protections are in place for moving forward, and rightfully so.

But MarketWatch caught up with Matt Hougan, chief investment officer of Bitwise Asset Management, formerly the chief executive officer of ETF.com, whose new fund may hold some appeal for those pining for a bitcoin ETF. One selling point, is that the fund may retain its attraction even if a bitcoin ETF eventually emerges.

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Weekly ETF moves
Top 5 gainers of the past week

% Performance

VanEck Vectors Oil Services ETF
OIH,
-3.31%
2.4

Invesco Optimum Yield Diversified Commodity StrategyPDBC

1.2

First Trust Global Tactical Commodity Strategy Fund
FTGC,
-2.00%
0.9

iShares GSCI Commodity Dynamic Roll Strategy ETF
COMT,
-2.84%
0.9

Global X Copper Miners ETF
COPX,
-3.99%
0.9

Source: FactSet, through close of trading Wednesday, May 12, excluding ETNs and leveraged products

Top 5 decliners of the past week

% Performance

iShares MSCI Taiwan ETF
EWT,
+1.48%
-9.8

Invesco WilderHill Clean Energy ETF
PBW,
-3.16%
-8.6

Amplify Transformational Data Sharing ETF
BLOK,
-7.11%
-8.3

ALPS Clean Energy
ACES,
-0.95%

 

-7.9

iShares U.S. Home Construction ETF
ITB,
+2.03%
-7.7

Source: FactSet, through close of trading Wednesday, May 12, excluding ETNs and leveraged products

Here’s what happened?

Weekly performance across the board for ETFs was lackluster as investors have been wrestling with the rising threat of inflation and have gravitated to themes and strategies they that they think will perform better in that environment.

Read: What does inflation mean for the stock market? It’s supposed to be a positive —but investors are spooked now

See: The biggest ‘inflation scare’ in 40 years is coming—what stock-market investors need to know

VanEck’s oil-services
CL.1,
-4.09%

fund registered a 2.4% return among the best performers over the week. And evidence of inflation bubbling up appears to be helping boost commodity-focused funds, more broadly, including those for copper
HG00,
-1.37%

as the COVID-19 pandemic loosens its grip on parts of the world, amid a rollout of coronavirus vaccines and treatments.

A recent research report from FlexShares indicates that factors like “value, size, and dividend yield,” tend to post strong gains during economic recoveries like the one the U.S. is experiencing presently.

“Given the historic relative outperformance of the size and value factors during an economic recovery—with an average excess return of 15% and 6.5% respectively during this type of environment—investors may want to consider ETFs with a tilt towards value stocks and a smaller market capitalization,” the folks at FlexShares write.


FlexShares

Is there an ETF for that?

Bitwise Asset Management launched the Bitwise Crypto Industry Innovators ETF
BITQ,
-9.98%

 earlier this week.

There are plenty of funds that attempt to leverage from the growth in the crypto and blockchain market, but Hougan makes the argument that this fund is different primarily because it’s allowed to carry “crypto” in the title. That may sound like just window dressing but regulators compel a company/sponsor using a specific word in a fund’s name to put their money where their mouth is.

“It is the first ETF that has crypto in the name and the reason it is able to do that is that it is more than 80% is pure-play,” companies, Hougan said.

The ETF pro thought that people are excited about the idea of a bitcoin
BTCUSD,
-12.76%

fund because they are interested in the idea of the world’s No. 1 digital asset but may not want to hold it directly.

Bitcoin is inherently volatile and hard to value, which may be one reason why the SEC has thus far been hesitant to push forward with a ETF-wrapped crypto fund.

On Tuesday, the SEC in a statement said that investors “should consider the volatility of bitcoin” as well as “the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.” The statement was a reference to the growing bitcoin futures market and mutual funds but the message implies that the SEC is moving gingerly in the sector.

On Thursday bitcoin prices on CoinDesk were down 10% at around $50,170, and had hit a 24-hour low of $46,294.12, a month after an all-time high around $64,000. Bitcoin’s slide accelerated on Wednesday after Musk said that he would no longer accept the crypto at Tesla stores. That has taken the broader digital-asset complex along for the ride lower, with assets tied to Ethereum
ETHUSD,
-11.52%
,
the second largest crypto in the world, also in the red. That includes meme asset dogecoin
DOGEUSD,
-17.41%
.

BITQ consists of 30 companies and is market-cap weighted but capped at 10%. It has crypto platform Coinbase Global
COIN,
-8.51%

as its biggest holding. Michael Saylor’s MicroStrategy Inc.
MSTR,
-11.42%

is another significant component, as well as Mike Novogratz’s Galaxy Digital Holdings
GLXY,
-15.61%

and bitcoin miners Riot Blockchain
RIOT,
-21.00%

and Marathon Digital Holdings
MARA,
-18.97%
.

This isn’t quite a bitcoin ETF, there are a bunch on file with the SEC, but for many investors who are able to stomach the wild moves of crypto, this could be a an alternative.

“This is not a bitcoin ETF but it does hold the companies that are building out the [crypto] infrastructure,” Hougan said.  

It is worth noting that there is at least one notable entrant in the digital-asset world with a similar fund composition to BITQ.

VanEck Vectors Digital Transformation ETF
DAPP,
-9.16%
,
which made its debut last month, aims to give owners exposure to the “digital transformation of the economy,” and holds a number of the same companies as Bitwise but comes sans the “crypto” title and with a lower expense ratio at 0.65%, versus 0.85% for Bitwise.

DAPP is down early 16% so far this week.

Chart of the week

Tech stocks have been punished in the recent selloff that saw the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite Index all get clobbered on Wednesday. But Cathie Wood’s Ark Innovation fund has seen the worst of the downturn in equities, reports The Wall Street Journal.

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