For cryptocurrencies, 2021 was a pivotal year. As institutional and retail investors embraced digital currencies, crypto tokens reached record highs led by Bitcoin and Ethereum.
Though there's still no pure-play cryptocurrency ETF trading on the major US indices with which to invest directly in digital tokens, we now have several exchange-traded products (ETPs) that provide access to some cryptos, via companies at the center of the growth in the digital asset space and firms that develop blockchain technology.
We previously covered several of these funds. They include (in alphabetical order):
Amplify Transformational Data Sharing ETF (NYSE:BLOK)— down 26.6% year-to-date (YTD);
First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR)—down 12.9% YTD;
Grayscale Bitcoin Trust (BTC) (OTC:GBTC)—down 25.9% YTD;
Grayscale Ethereum Trust (ETH) (OTC:ETHE)—down 39.5% YTD;
Global X Blockchain ETF (NASDAQ:BKCH)—down 38.3% YTD;
ProShares Bitcoin Strategy ETF (NYSE:BITO)—down 15.8% YTD;
Valkyrie Bitcoin Strategy ETF (NASDAQ:BTF)—down 15.6% YTD;
VanEck Bitcoin Strategy ETF (NYSE:XBTF)—down 19.9% YTD.
Of these names, GBTC and ETHE are trusts that invest in Bitcoin and Ethereum directly. On the other hand, BITO, BTF, and XBTF are futures-based funds, providing managed access to Bitcoin futures contracts. And finally, BLOK and LEGR invest in companies in the digital economy sector.
Despite the keen interest by some on Wall Street in these cryptos and related businesses, 2022 has not been a good year for the industry. As the returns above show, most holdings in these ETPs have recently been under significant pressure. Of note, Bitcoin and Ethereum lost 15.7% and 29.8%, respectively.
Today’s article introduces two exchange-traded funds (ETFs) for contrarians who want to take advantage of the decline in the crypto space. However, we should remind potential investors that these thematic funds typically have high expense ratios. Also, given the nature of the crypto industry, the prices of their holdings should continue to be volatile.
1. Bitwise Crypto Industry Innovators ETF
- Current Price: $13.78
- 52-week range: $13.40 - $35.68
- Expense ratio: 0.85% per year
Our first fund, the Bitwise Crypto Industry Innovators ETF (NYSE:BITQ), includes names that serve cryptocurrency markets. These are generally crypto miners, mining equipment suppliers, and crypto financial services companies. The fund started trading in May 2021.
BITQ, which has 30 holdings, tracks the Bitwise Crypto Innovators 30 Index. In terms of sectoral allocations, we see technology with (49.7%), followed by financial services (45.8%). The top 10 stocks account for almost 65% of $104.02 million net assets.
Leading holdings in the fund include the banking group Silvergate Capital (NYSE:SI); enterprise analytics software MicroStrategy (NASDAQ:MSTR); crypto exchange Coinbase Global (NASDAQ:COIN); Chinese computer hardware manufacturer Canaan (NASDAQ:CAN); and Iris Energy (NASDAQ:IREN), a Bitcoin miner.
The ETF is down more than 34% year-to-date (YTD). On Jan. 27, it hit a record low intraday of $13.40. Buy-and-hold investors could find value in BITQ around current levels.
2. First Trust SkyBridge Crypto Industry and Digital Economy ETF
- Current Price: $11.46
- 52-week range: $11.13 - $27.56
- Expense ratio: 0.85% per year
Our second fund, the First Trust SkyBridge Crypto Industry and Digital Economy ETF (NYSE:CRPT) invests in crypto and digital economy businesses. Since its inception in September 2021, its net assets have reached $44.08 million.
CRPT also has 30 holdings, 10 of which comprise around two-thirds of the portfolio. Over 70% of the firms come from the US. Next in line are companies based in Canada, Cayman Islands, Australia, China, Argentina, and the U.K.
Close to half of the names in the ETF are software stocks. After that we see names from capital markets (22.69%), IT services (11.84%), and banks 11.62%.
Coinbase Global has the leading slice in the ETF with 11.68%. Next comes MicroStrategy, with 10.23%. Among the other top names we see are the investment management group Galaxy Digital Holdings (OTC:BRPHF); Bitcoin miner Core Scientific (NASDAQ:CORZ); and financial technology (fintech) giant Block (NYSE:SQ).
Since January, CRPT has lost 33.2% of its value and hit a record low in late February. The fortunes of many of the names in the fund are tied to those of cryptocurrencies, especially that of Bitcoin. Investors whose portfolios can handle short-term volatility could consider buying the current dip in CRPT.