The frenzied buying and selling of cryptocurrencies remain unstoppable – and that’s despite the Securities and Exchange Commission’s best attempts to slow the crypto train.
The fund provider community has been toiling to get a Bitcoin exchange-traded fund (ETF) to market, and so far, it has been in vain. At the moment, more than 20 cryptocurrency ETFs are under review by the SEC, which has taken to kicking this can down the road.
For instance, on Dec. 30, 2020, VanEck filed for a Bitcoin ETF that would invest directly in bitcoins. However, in mid-September, the SEC delayed its decision on the VanEck Bitcoin Trust for an additional 60 days. It’s now expected to approve or reject the proposal by Nov. 14. The SEC filed its 60-day extension notice on the last day of the approval process – the SEC has 180 days to render a decision on a filing with a 60-day extension if required – so it appears the regulator intends to wait until the very last moment to weigh in.
SEC Chair Gary Gensler has said that he would prefer to see funds holding Bitcoin futures rather than the cryptocurrency itself. There are plenty of candidates already: ProShares, Invesco, Valkyrie, AdvisorShares, Ark Invest and VanEck are among names that have filed for futures-linked Bitcoin ETFs.
For now, investors will have to make do with other strategies.
Here are 11 Bitcoin ETFs and other cryptocurrency funds available to investors today. For the most part, these products deal in equities that are somehow involved with cryptocurrencies, though a couple provide more direct exposure … albeit with their own twists and turns.
Grayscale Bitcoin Trust
- Assets under management: $36.1 billion
- Expense ratio: 2.00%
We’ll start off with a couple of funds that are ETF-like, in that they trade throughout the day, but not quite ETFs.
The Grayscale Bitcoin Trust (GBTC, $44.65) is neither a mutual fund nor an ETF. Instead, it’s what’s described as a closed-end grantor trust. This means that it issues a fixed number of shares when it goes public, and then those shares are traded “over-the-counter” (OTC).
GBTC shares are intended to follow the price of Bitcoin based on the CoinDesk Bitcoin Price Index. At the moment, each share of the Grayscale Bitcoin Trust represents 0.00093535 bitcoins, but that number isn’t fixed. That’s because, unlike an ETF, closed-end trusts such as GBTC can trade at a discount or premium to their underlying assets.
That has been the case with GBTC ever since its launch (as the Bitcoin Investment Trust) in 2013. Today, the Grayscale Bitcoin Trust trades at a 14% discount to the NAV of the bitcoins held by the Trust, meaning you were effectively buying bitcoins for 86 cents on the dollar. At the other end of the spectrum, it traded at a 40% premium in December 2020.
Grayscale Investments manages more than $38 billion in digital currency assets, with bitcoins representing most of those assets.
Investors concerned about fees might not like the fact the trust charges a 2% management fee. That’s sky-high compared to an average fee of 0.53% for ETFs, and still lofty compared to the average fee of 1.42% for mutual funds.
However, when you consider that it can cost as much as 1.49% to buy or sell bitcoins directly, and the average holding time for Coinbase buyers and sellers is 53 days, the argument against high fees isn’t nearly as clear-cut.
One last thing to note: Grayscale Investments hired David LaValle as its global head of ETFs. He will be in charge of Grayscale’s attempt to convert GBTC from a trust into an ETF at some point. Because of how ETFs are structured, a conversion would most likely eliminate the premium/discount issue.
Amplify Transformational Data Sharing ETF
- Assets under management: $1.3 billion
- Expense ratio: 0.71%
The Amplify Transformational Data Sharing ETF (BLOK, $48.62) is similar to many U.S. cryptocurrency ETFs in that it is primarily invested in equities, but it does have a sneaky way of providing a little more “direct” exposure.
BLOK is an actively managed fund that aims to invest at least 80% of its assets in companies that are involved in developing blockchain technologies, and/or using them for their own business.
The ETF has 47 holdings, the top 10 of which account for about 45% of assets. Included in that number are MicroStrategy (MSTR), the data analytics software company that’s become more known for its Bitcoin investments than its existing business; Bitcoin miners such as Marathon Digital (MARA) and Hut 8 Mining (HUT); and Coinbase Global (COIN), one of the world’s leading cryptocurrency exchanges that went public in April.
However, a few interesting holdings are found outside of the top 10. Specifically, BLOK invests in the Purpose Bitcoin ETF (two listings, one in Canadian dollars, and one in U.S. dollars), as well as the 3iQ CoinShares Bitcoin ETF – all of which are Canadian ETFs that directly track Bitcoin.
Breaking down the blockchain industry allocation, BLOK’s top three are crypto miners (28%), venture capital (10%), and exposure (10%). Exposure represents the three ETFs mentioned in the previous paragraph.
BLOK is also diversified across size: 45% of assets are large-cap stocks or ETFs, 21% are mid-cap and 33% are small-cap or unclassified. That makes for an average market cap of $7.9 billion.
Bitwise 10 Crypto Index Fund
- Assets under management: $1.2 billion
- Expense ratio: 2.50%
The Bitwise 10 Crypto Index Fund (BITW, $50.25), launched in 2017, tracks the performance of the Bitwise 10 Large Cap Crypto Index, representing the 10 largest investable cryptocurrencies. These 10 cryptocurrencies account for 70% of the total crypto market.
Because BITW is weighted by market capitalization, Bitcoin accounts for 65% of the portfolio. That’s more than double Ethereum, at 25%. Cardano is a distant third at 4%.
BITW only became available over-the-counter in December 2020. It began trading with just $120 million in assets – less than a year later, it has 10 times that, indicating just how popular these instruments have become.
Its press release announcing its OTC availability explained how it works relative to an open-ended mutual fund or ETF.
“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.”
While the Bitwise 10 Crypto Index Fund is built differently than GBTC, it can still sell at a premium or discount to the net asset value per share. BITW currently trades at a 10% discount to NAV.
Siren Nasdaq NexGen Economy ETF
- Assets under management: $278.4 million
- Expense ratio: 0.68%
The Siren Nasdaq NexGen Economy ETF (BLCN, $46.12 is a passively managed (read: index) ETF that tracks the performance of the Nasdaq Blockchain Economy Index, which is made up of stocks that support blockchain technology or utilize it for their own businesses.
BLCN, launched in January 2018, has 63 holdings. The index starts with all companies larger than $200 million in market cap that exhibit “blockchain company” characteristics. It then assigns them a “blockhain score” – the index’s proprietary screening methodology that scores each company based on their ability to benefit from blockchain technologies.
The ETF is reasonably diversified. The top 10 holdings account for just 20% of its overall assets. Silvergate Capital (SI) – which provides loans and banking services to companies related to cryptocurrencies, the blockchain and fintech – is the largest holding with a weighting of 2.6%. Silvergate provides loans and banking services to companies related to cryptocurrencies, the blockchain, and fintech.
The top three sectors are technology (43%), financials (33%) and communications (11%). And BLCN is very much a “global” fund – the U.S. accounts for 53% of assets, with the rest coming from other nations including Japan (13%) and China (13%).
First Trust Indxx Innovative Transaction & Process ETF
- Assets under management: $135.3 million
- Expense ratio: 0.65%
The First Trust Indxx Innovative Transaction & Process ETF (LEGR, $43.03) is another equity-based cryptocurrency ETF, one that launched in 2018. It tracks the performance of the Indxx Blockchain Index, an index that follows companies that have some connection to blockchain technologies – and it has an interesting weighting methodology.
LEGR’s index takes all available blockchain companies and ensures that each holding meets specific size, liquidity and trading minimums. It then applies a score of 1 for companies actively developing blockchain technology, 2 for companies actively using blockchain technology, and 3 for companies actively exploring blockchain technology.
The index then only includes companies scoring 1 or 2, giving 50% of the weighting to firms scoring 1, and 50% to those scoring 2. Companies scoring 3 are excluded altogether. The portfolio is capped at 100 stocks, and the index is rebalanced and reconstituted twice a year.
The ETF’s top three sectors are financials (39%), technology (32%), and consumer discretionary (9%). The top three countries are the U.S. (34%), China (12%), and India (7%). This also is a large-cap-heavy fund, with a median market cap of almost $94 billion.
- Assets under management: $111.0 million
- Expense ratio: 0.50%
The Simplify US Equity PLUS GBTC ETF (SPBC, $26.89) offers very diluted exposure to Bitcoin, but that’s by design.
This fund, which launched at the end of May, has already gathered more than $100 million in assets by “giving it 110 percent.” That is, SPBC manages to provide a 100% investment in equities along with an additional 10% exposure to Bitcoin.
How does Simplify do it?
Most of SPBC’s market exposure is achieved through holding the iShares Core S&P 500 ETF (IVV), which is one of the major S&P 500 ETFs. However, it also invests a little of its assets into E-mini S&P 500 Futures, which provides much more exposure to the broader market than the ETF can provide. That allows it to invest an additional 10% to a maximum 15% in the Grayscale Bitcoin Trust, which we discussed earlier in this article.
For decades, allocation funds have acted as a “portfolio in a can,” providing investors with bond and stock exposure in a single product. Consider SPBC a more modern iteration of that for people who believe it’s important to be invested in both the stock market and cryptocurrencies.
Bitwise Crypto Industry Innovators ETF
- Assets under management: $80.8 million
- Expense ratio: 0.85%
Bitwise Crypto Industry Innovators ETF (BITQ, $23.95) is another equity-focused cryptocurrency ETF. This index fund tracks the performance of the Bitwise Crypto Innovators 30 Index, created by Bitwise Index Services LLC, which is an affiliate of Bitwise Asset Management – the world’s largest crypto index fund manager.
To make it into the index, a company must generate at least 75% of revenues from the cryptocurrency ecosystem, or have 75% of their net holdings in Bitcoin or some other liquid crypto asset. These are considered “crypto innovators” and account for 85% of the index holdings. The remaining 15% of the fund is made up of non-Innovators that are at least $10 billion in market cap and either have a dedicated business initiative focused on the crypto ecosystem, or hold at least $100 million in Bitcoin, Ethereum or another liquid crypto asset.
BITQ, which launched on May 21, has 30 holdings, as the name of the benchmark implies.
The argument for buying this new ETF is three-fold: It gives you exposure to the crypto market without owning crypto assets directly; it gives you exposure to the companies building the crypto infrastructure such as Bitcoin miners, trading platforms, etc.; and lastly, it gives you a piece of global cryptocurrency players such as Coinbase.
BITQ carries many of the same stocks as the other funds on this list – names like MicroStrategy, Galaxy Digital (BRPHF) and Silvergate. But because of the concentrated nature of the 30-stock portfolio, the top 10 stocks account for a massive 64% of assets.
If you have real conviction in the cryptocurrency movement, BITQ is one of the best equity ETFs you can use to express it.
Global X Blockchain ETF
- Assets under management: $54.3 million
- Expense ratio: 0.50%
The Global X Blockchain ETF (BKCH, $25.89) looks to invest in companies that benefit from the global blockchain solutions market, which IDC believes could surpass $19 billion by 2024.
BKCH tracks the performance of the Solactive Blockchain Index, a collection of stocks that have operations that utilize or benefit from digital assets and blockchain technologies. It divides the companies into three groups: 1.) “pure-play” stocks that derive at least 50% of revenues from blockchain activities; 2.) “pre-revenue” firms whose primary business is in blockchain technology but don’t yet generate revenue; and 3.) “diversified” companies that generate less than 50% of revenues from blockchain activities.
The index is weighed by free float market cap, but it also has a few rules it enforces at each rebalancing. No component can account for more than 12% of the portfolio and no less than 0.3%. All stocks with a weighting of greater than 4.5% can’t collectively account for more than 45% of the portfolio, with the remainder capped at 4.5%. And pre-revenue firms and diversified companies can’t make up more than 10% of the firm collectively, and individually can’t be weighted any more than 2%.
Technology is BKCH’s largest sector by far, at 72% of assets, followed by financials (15%) and communication services (7%). The U.S., Canada, and China account for almost 92% of the portfolio. Marathon Digital is the largest holding with a weighting of more than 17%, followed by Coinbase at a little more than 12%; at those weights, both stocks would have to be trimmed down to the 12% limit at the next rebalancing.