The Valkyrie Bitcoin Miners ETF (WGMI), Van Eck Bitcoin Strategy ETF (XBTF), and Bitcoin (BTC) are being explored as investment instruments by those seeking to benefit from Bitcoin’s volatile pricing. These three avenues offer opportunities for investors.

These funds might present a unique opportunity for generating income for those with a keen interest in Bitcoin. Below is a succinct overview of three significant investment trusts that provide exposure to Bitcoin.

Investment Trust Strategies

Cryptocurrency exposure for daring investors is possible through Bitcoin investment trusts. By trading in over-the-counter markets and tracking the prices of Bitcoin, these trusts hold the assets. Bitcoin strategy ETFs usually focus on investing in Bitcoin futures contracts rather than direct investment in cryptocurrencies. Companies within the Bitcoin sector, such as Bitcoin mining enterprises, are often the focus of ETFs crafted by some brokers.

Active trading on the Nasdaq exchange defines WGMI, an initiative introduced in February 2022. With a net asset value of $13.59 million and a 0.75% expense ratio as of Oct. 17, 2023, it signifies its growth potential.

The Bitcoin Miners ETF distinguishes itself by focusing on businesses active in the Bitcoin ecosystem, specifically blockchain mining. The fund’s leading ten investments and corresponding allocations include:

• Marathon Digital Holdings Inc., 10.88%
• Riot Platforms, 10.08%
• Cipher Mining Inc., 9.71%
• Hive Blockchain Technologies, 9.20%
• Bit Digital, Inc., 8.94%
• Iris Energy LTD, 4.89%
• Bitfarms LTD, 4.77%
• Cleanspark, Inc., 4.74%
• Terawulf, Inc., 4.73%

The fund dedicates 80% of its capital to Bitcoin blockchain-related enterprises, generating a minimum of 50% of revenue from activities like mining and software development. The latest semi-annual data illustrates 90.89% dedication to software ventures, 6.93% to semiconductor entities, and 1.63% to storage and peripheral enterprises.

XBTF focuses on Bitcoin futures and U.S. Treasuries, mirroring the strategy of similar funds. Since its November 2021 debut on Cboe BZX, it amassed $46.97 million in assets with a 0.66% expense ratio by Oct. 17, 2023.

The active management of this fund focuses on risk mitigation and expense control concerning Bitcoin by transacting in Bitcoin Futures. It holds U.S. Treasuries and invests in money market instruments to maintain flexibility against Bitcoin price volatilities.

Instituted in 2013 as an open-ended private trust by Alternative Currency Asset Management, Grayscale Investments LLC sponsors it now. Public trading began in 2015 under the symbol associated with accounts like IRAs and 401(k)s. Management fees are set at 2%.

According to several sources, as of 2023, over 17 million Bitcoins have been mined, with a market cap exceeding $1 trillion. The increasing interest in Bitcoin and cryptocurrency investments has led to the development of more financial products tailored to this digital asset class.

Since the mid-2010s, numerous ETFs have been introduced by different brokers. Some of these include:

• ProShares Bitcoin Strategy ETF (BITO)
• ARK Next Generation Internet ETF (ARKW)
• Valkyrie Bitcoin and Ether Strategy ETF (BTF)
• Invesco Alerian Galaxy Crypto Economy ETF (SATO)
• ProShares Bitcoin & Ether Market Cap Weight Strategy ETF (BETH)

Despite the allure of publicly traded Bitcoin funds offering access to a highly sought-after asset class, there are considerations. Notably, direct Bitcoin exposure is scarce, although changes may be forthcoming. In August 2023, a landmark decision mandated a review of Grayscale’s Bitcoin ETP proposal, highlighting potential changes in investment frameworks.

Market Dynamics

A prevalent issue with Bitcoin investment instruments is their presence in underpenetrated markets, causing heightened price instability. In these markets, the lack of adequate players results in significant price swings.

OTC-traded companies do not meet the extensive disclosure requirements typical of publicly listed entities. As a result, traders lack vital information essential for strategizing their trading ventures.

Understanding Bitcoin Trusts and ETFs

Investment trusts and exchange-traded funds (ETFs) differ substantially in configuration. Investment trusts involve pooled investor funds managed to acquire assets, granting unit holders proportional ownership. Conversely, ETFs track specific assets or indices, trading on platforms like the Chicago Mercantile Exchange (CME).

Risk of Price Fluctuations

Price changes of Bitcoin trading instruments on public markets often amplify underlying asset fluctuations, heightening potential losses. Such dynamics can lead to paying excessive premiums in bull markets and discounts during downturns. A notable premium occurred in the 2017 bull market when GBTC shares traded at a 100% premium to Bitcoin’s actual market price.

The insights, views, and analyses shared in this article serve purely informational objectives. Read our terms for additional insights. The author did not own any cryptocurrency when drafting this piece.