Cryptocurrencies have for the most part started the new year on a negative note. For example, and , the two largest digital assets by market cap, are down around 11% and 14%, respectively. But last year they returned over 19% and 163%.
However, not all cryptos are down in 2022. , , , and have already made significant gains over the past two weeks.
Yet the volatility of the digital asset space, especially in the short term, is not appropriate for all retail portfolios. There are currently over 15,000 cryptos. For most investors, parsing these names to find out who will emerge as the next winner is next to impossible.
Also, not all investors have accounts with crypto brokers, like Coinbase Global (NASDAQ:). Therefore, a large number of small investors could not buy these assets either.
So today we’re showcasing two exchange-traded funds (ETFs) that might be suitable for those following Bitcoin as well as the blockchain technology behind digital assets. These funds allow investors to access these assets through regular brokerage accounts.
We recently have the VanEck Bitcoin Strategy ETF (NYSE:) and the Ethereum trust in grayscale (OTC:). Today’s discussion builds on this analysis.
1. ProShares Bitcoin Strategy ETF
- Current price: $27.17
- 52 week range: $24.88 – $44.29
- Expense ratio: 0.95%
The last quarter of 2021 saw the launch of ProShares Bitcoin Strategy ETF (NYSE:), the first Bitcoin futures fund to list in the United States. This ETF wrapper does not invest in Bitcoin directly, but instead tracks the performance of Bitcoin futures, which deviates from the spot price.
A term fund like BITO needs to be rolled over regularly by fund managers, in most cases on a monthly basis. These funds generally trade “in contango”, which means that the futures price of the asset is higher than the spot price.
As a result, investors in such funds have a contango risk, which can easily reach 6% to 9% per year, or even more. So, ETFs based on futures contracts come with a significant performance tag.
When we remember that BITO’s annual expense ratio is currently 0.95%, it’s easy to see why not everyone on Wall Street is very enthusiastic about Bitcoin futures-based ETFs. Potential investors should fully understand their potential risk and reward profiles before pressing the “buy” button.
Readers should also note that the other term used to define the structure of the futures curve is backwardness, which refers to when futures prices fall below the spot price. Offset is a rare event that usually does not last long. Therefore, long-term investors in BITO should not necessarily expect to benefit from it.
On October 19, BITO opened at a price of $40.88. Then, on November 10, it hit an all-time high of $44.29. But the new year has already brought a record high of $24.88. Now the fund’s price is $27.17, having lost more than 30% since inception.
Despite the volatility and decline, assets under management stand at nearly $1.1 billion. While we remain optimistic about the increased adoption of digital assets, ETFs based on Bitcoin futures are not suitable for all investors.
2. Global X Blockchain ETF
- Current price: $20.11
- 52 week range: $18.55 – $41.25
- Expense ratio: 0.50% per year
Search by PWC strong points:
“Blockchain is the technology that enables the existence of cryptocurrency (among other things). Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented. A cryptocurrency is a medium of exchange, like the US dollar, but it is digital and uses encryption techniques to control the creation of monetary units and verify the transfer of funds.
Recent measurements suggest that the blockchain market is expected to grow from around $5 billion in 2021 to over $67 billion in 2026, implying a compound annual growth rate (CAGR) of over 68%. As a result, many seasoned investors are paying close attention to the companies at the center of this growth.
the Global X Blockchain ETF (NASDAQ:) invests in companies that are advancing or benefiting from blockchain technologies. These names include crypto miners or those who develop blockchain applications and offer digital asset integration.
BKCH, which has 25 holdings, first listed in July 2021. The top 10 holdings account for nearly three-quarters of net assets of $105.1 million.
At the sub-sector level, we find information technology (73.7%), finance (18.7%), communication services (2.6%) and real estate (2.2%). ). Nearly 60% of these companies are based in the United States. Next come those based in Canada (18.5%), China (9.5%) and Germany (7.4%).
Coinbase Global holds the largest share of the fund, with 12.98%. The other big names on the list are crypto miners Riot Blockchain (NASDAQ:) and digital marathon (NASDAQ:), Germany-based IT group North Data (DE:), which focuses on artificial intelligence and machine learning, and digital asset broker Travel Digital (OTC:).
Since inception, BKCH has fallen around 20% and hit a record low in early November. Long-term investors who are bullish on blockchain technology might consider further researching the fund. Many names in the fund are also likely to benefit from potential increases in digital assets like Bitcoin.
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