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Bitcoin ETF: Boom, Bust or Bounce?

Updated: Mar 26, 2022

Closely tracking the performance of their underlying assets, Crypto ETFs (Exchange-Traded Funds) have averaged a double-digit decline since the beginning of the year, forcing investors to withdraw more than $186 million from the funds, 70% of which belong to Bitcoin ETFs.

From a high of over $68,000 per coin in November 2021 to a low of less than $39,000 per coin in January 2022, the crypto bloodbath has taken the Bitcoin ETF from the most successful product launch of all time to one of the biggest losers less than six months after it began trading. Unfortunately, the timing has been very difficult for cryptocurrency ETFs. When the first product in this new asset class, the flagship Bitcoin ETF, - "ProShares Bitcoin Strategy" (ticker: BITO)-, was launched in October 2021, it raised nearly $1 billion, making it the best start for a pre-seed investment fund, but a few months later, with a 30% drop in 2022, the ProShares Bitcoin ETF (BITO) ended up with one of the 10 worst returns when looking at returns two months after a public listing.

Low-Risk appetite hurts Crypto ETFs

As investors went into risk-off mode and dumped some of the riskiest assets earlier this year, Bitcoin fell sharply to trade below $39,000 for the first time since August 2021 and continued to fall to a six-month low of $32,950 on 24 January 2022. Ethereum and Binance Coin, the second and third largest cryptocurrencies respectively, suffered similar losses. The total capitalisation of the cryptocurrency market has fallen to $1.86 trillion after reaching a record $3 trillion in early November 2021. Cryptocurrency exchange reported that around $147 billion was wiped off the entire cryptocurrency market in just 24 hours of trading.

While the flow data shows that the initial euphoria for cryptocurrency ETFs have not been sustained, the current poor performance should not necessarily impact the future growth of the sector and its ability to raise further assets. Indeed, the market downturn could provide an interesting entry point for new investors. One should certainly not throw out the "baby with the bathwater".

Bitcoin ETF is still a good way to stabilize investment in this coin

Although it has been turbulent since the beginning of the year, the bitcoin price is likely to rise again. The increased presence of institutional investors in the market is giving it new credibility. The penetration of the market by institutions is a symbol of the acceptance of cryptocurrency as a new and compelling asset class. Investors who are new to investing in crypto-currencies, or who are not comfortable trading them on the stock market, will still benefit from choosing ETFs, as despite the volatility displayed, they remain a safer option for managing many aspects of the investment, including the security risks associated with storing cryptocurrencies.

Bitcoin ETFs are a passive management tool, offering low management fees and high flexibility in terms of exposure to the underlying asset. The significant advantage of ETFs is that they allow mainly traditional players to invest in the crypto ecosystem in a simple way, avoiding legal or security risks.

The cryptocurrency Bitcoin remains an investment product with the best track record over the last 5 years and with the greatest upside potential for 2022.

  • 2021 performance: +63% in euros

  • Hisrotical Return: 2018 (-72.5%); 2019 ( +87.2%); 2020 ( 302..8%)

  • Potential loss: 100%

  • Holding period: from a few hours to several months

Comparison of returns below assuming $1 of each asset was purchased on the same day and all dividends were re-invested. (*)

Bitcoin (Cryptocurrency) (Bitcoin), Vanguard S&P500 ETF (VOO) -iShares 20+ Year Treasury Bond ETF (TLT)

As part of a balanced strategy, most experts recommend an allocation of up to 3% in bitcoin, while equities can represent up to 90% and bonds up to 30% of a portfolio.

Bitcoin-ETFs market in February 2022

Currently, Bitcoin ETFs can only hold Bitcoin futures or shares of companies and other ETFs with exposure to cryptocurrencies. The Security and Exchange Commission (SEC) is still evaluating the approval of ETFs that directly hold cryptocurrencies. However, investors can use Bitcoin ETNs (Exchange- Traded- Note) to participate in the returns of physical bitcoin holdings. In Europe, the diversification principles of the regulatory framework for investment funds (UCITS) do not allow the launch of a UCITS fund with a single constituent. As a result, access to Bitcoin is mainly available as an exchange-traded note (ETN) in European countries.

Bitcoin ETFs Market Characteristics :

0.95% p.a. - 2.00% p.a.

annual total expense ratio (TER) of Bitcoin ETFs/ETNs

on Bitcoin, which is tracked by ETFs

15 ETFs

on Bitcoin

Some notable Bitcoin ETFs (in descending order of assets under management (*)) are :

(*) All data is sourced from company filings and Morningstar, current as of Feb. 8, 2022


Disclaimer: This article is provided for information purposes only and does not constitute an invitation to invest. Please seek advice from your investment advisor before investing.


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