Buying cryptocurrencies such as Bitcoin and Ethereum can be thrilling, but it is also risky. The prices of these currencies can fluctuate drastically within a short span and it is difficult to predict their future. That was the reason why I thought of finding an alternative way through which I could benefit from the growth in the cryptocurrency market. Instead of purchasing the crypto coins directly, I am contemplating investing in businesses that support this blockchain technology. These are companies that create technology and offer services that drive the cryptocurrency market’s functional aspects such as chipmakers, miners, software developers, payment processors, and cloud computing providers. If there will be any growth in cryptocurrency markets then these companies should also grow.
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One interesting option for this type of investment is the Bitwise Crypto Industry Innovators ETF. This exchange-traded fund (ETF) was created by Bitwise Asset Management in May 2021. It aims to give investors exposure to stocks belonging to the crypto space’s leading players. The idea here is that you may invest in this ETF so that without necessarily holding bitcoins or ethers you receive a fraction of the pie. This might be an excellent strategy for avoiding direct risks associated with cryptos holdings yet still profiting from their development prospects even if not possessing them directly.
Bitwise Crypto Industry Innovators ETF monitors Bitwise Crypto Industry Innovators 30 Index. This index concentrates on pure-play crypto entities and those having more than $100 million worth of crypto assets. At present, the ETF has thirty firms in its portfolio. According to Matt Hougan, the Chief Information Officer of Bitwise, numerous public companies take advantage of cryptos and this number is expected to increase. This fund intends to identify such firms and enable investors to gain entry into them.
The ETF heavily invests in companies that have close links with the cryptocurrency industry. MicroStrategy and Coinbase Global, which are its two largest holdings, account for nearly a quarter of the ETF’s net assets. MicroStrategy is a data analytics company that has invested heavily in Bitcoin resulting in current holdings amounting to approximately $14 billion. Coinbase is one of the biggest and most reputable digital currency exchanges globally. These names are familiar in the market and they are both long on crypto’s prospects.
Despite this, the Bitwise Crypto Industry Innovators ETF has underperformed since its inception. Bitcoin’s price has gone up by 22% over the past three years, but the value of the ETF has lost about 41%. Over that same period, the S&P 500 index representing the overall stock market went up by 38%. Consequently, not only did it underperform Bitcoin, but also the general stock market.
Moreover, there is a matter of cost. The management fee charged by Bitwise is quite high at 0.85% per year; this expense ratio bears resemblance to what other ETFs demand annually for managing their funds. In contrast, when an individual purchases bitcoins directly and holds them in one’s wallet, he or she never pays any fees for this service. Most S&P 500 ETFs have expense ratios below 0.1%, which makes them less expensive to maintain over time. These charges may appear small but can quickly snowball particularly if the ETF performs poorly.
However, there may be reasons to avoid Bitwise Crypto Industry Innovators ETF in all circumstances. It is not the most attractive option with its high costs and poor returns, especially when other channels could be used to get exposure to the crypto market. For instance, you could buy cryptocurrencies directly or purchase shares of companies operating in the blockchain sector.
Before making any investing decisions, it’s important to do your research and think about your financial goals and risk tolerance. Investing within the cryptocurrency market, either via direct means or through BITQ which is an ETF becomes a dangerous affair. You must take time and consider carefully what are the advantages and disadvantages of each so that you will identify them for yourself more effectively and hence make wise choices. Currently, I’m just watching the market attentively while having in mind several alternatives.