How can you make a buck from Bitcoin price swings? Especially during a summer whose nickname might be the Cryptocurrency Apocalypse?
We subjectively selected 21 of the most prominent crypto-oriented funds to review. Nineteen of them, including ETFs and a mutual fund, that specialize in exposure to cryptocurrency and activities related to cryptocurrency are down sharply this year. Only two other funds that short crypto are up.
That also makes this summer prime time for figuring out if its time to buy shares in such funds since they've tumbled into the bargain bin. Or is their sell-off a sign that you should avoid the Bitcoin price space because it's the sham its critics have long claimed?
Yet another option: is it time to join investors who are shorting Bitcoin and other cryptocurrencies?
Bitcoin Price Plunge
Among crypto-Bitcoin price funds in retreat, 16 that are old enough to have year-to-date returns from Morningstar Direct going into Wednesday are shouldering setbacks ranging from over 21% to almost 75%.
Another three funds that opened early in February and March of this year have total returns since inception through June 30 of about negative 59% to about 66%.
The crux of the problem is a crypto crash. Bitcoin, the most prominent cryptocurrency, was trading at 20,126 on Wednesday, according to Coindesk.com. That was down from 67,413 on Nov. 9.
Other cryptocurrencies have plunged comparably. Altogether, the tumble has made strategies for playing Bitcoin price moves toxic — at least, on the face of it.
Bad News Throughout The Realm
The bad news has rippled outward, rocking financial firms elsewhere in the cryptocurrency sphere. A British Virgin Islands court ordered liquidation of Singapore-headquartered, BVI-incorporated hedge fund Three Arrows Capital. 3AC reportedly suffered huge liquidations in the wake of cryptocurrency market collapses. Among its reported woes: failure to make payments on loans.
Crypto brokerage Voyager Digital said last week it was suspending trading, deposits and withdrawals.
Celsius Network, a lender in the crypto space, paused withdrawals by depositors in June.
Crypto lender Vauld suspended withdrawals on its platform on Monday.
Terra stablecoin collapsed in May.
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Different Approaches
Variations among returns for Bitcoin price funds and their ilk reflect differences among their holdings. For one thing, only one fund open to U.S. shareholders has direct exposure to cryptocurrencies. Instead, some invest in crypto futures contracts. Some also invest in additional enterprises with some stake in digital money.
Those additional exposures include companies engaged in crypto mining or mining services. Crypto mining is the computational process that creates cryptocurrency.
Crypto funds can also invest in crypto exchanges, payment platforms and asset managers.
Biggest Loser This Year
How are various funds doing? Global X Blockchain ETF is down the most among funds and fund-like entities. (More about what we mean by "fund-like" entities in a moment.) Its year-to-date loss is 74.87%.
The fund tracks the Solactive Blockchain Index. That index includes stocks that use or benefit from digital assets and blockchain technologies. Blockchain is the ledger that tracks crypto transactions.
Grayscale Bitcoin Trust
Grayscale Bitcoin Trust is a "fund-like" security. Technically, it is neither an ETF nor a mutual fund. It is a closed-end grantor trust. It issued a set number of shares when it first went public. Since then, those shares have traded in the over-the-counter (OTC) market.
The Trust holds actual Bitcoin. And it tracks Bitcoin price moves based on the CoinDesk Bitcoin Price Index. One key wrinkle: The trust can trade at a discount or premium to Bitcoin. Its discount widened to more than 31% as of July 1.
So the good news is that you're more or less paying only 69 cents for every $1 worth of Bitcoin in the trust. The bad news? GBTC had a 57.23% setback for the year, going into Wednesday.
Bitcoin Strategy ProFund Investor (BTCFX) is a mutual fund. The fund invests largely in Bitcoin futures. It can also invest in Canadian ETFs that hold Bitcoin directly. And it can hold securities such as U.S. Treasuries.
That fund, not quite one year old, is down 56.44% this year.
Smallest Decline This Year
The fund with the smallest YTD decline is First Trust Indxx Innovative Transaction & Process ETF. The fund is down 21.30%.
Its 12-month yield is 3.11%.
The fund tracks the Indxx Blockchain Index. That basket follows stocks that have some connection to blockchain technologies. The index favors companies developing blockchain technology vs. those using or exploring such technology.
The ETF's three biggest sectors are financials, with a 41% weigh; technology, at a 28% weight; and communication services, at 10%.
The ProShares Bitcoin Strategy ETF was the first U.S. ETF to give shareholders a swing at Bitcoin futures. Since it's an ETF, a shareholder does not need an account at a cryptocurrency exchange. Nor does a shareholder need a crypto wallet. Nor does that shareholder have to contend with the hassles and risks of holding Bitcoin itself.
The $637.5 million fund is down about 57% this year.
Bitcoin Price Strategies
So, should you buy, sell, short or avoid the Bitcoin price arena? Financial advisor Dawn Dalby, chief executive of Releve Financial Group, said she is "still pro-cryptocurrency, but I advise clients to only invest what they can afford to lose because it is so speculative."
Beyond that, any Bitcoin price plays should fit into your long-term investment plan, she says. Think of crypto as one additional asset class in your asset allocation.
And beware of risks with cryptocurrency bets. Those include:
- The lack of diversification. Many of them hold nothing but futures contracts.
- High fees. "That's typical in the crypto ETFs space," she said. Several have fees over 1%. The average expense ratio for U.S. stock ETFs is 0.12%.
- Tracking errors. Prices tend to deviate from prices of underlying cryptos and other assets.
Shorting Bitcoin Price Swings
How challenging is it to play Bitcoin price ups and downs? If you think cryptocurrencies are in a sustained price-decline rut, surely shorting Bitcoin price moves is the way to go, right?
And of course the market offers ETFs devoted to that strategy. The newest is ProShares Short Bitcoin Strategy ETF. This tiny $69.6 million ETF opened June 21.
BITI delivers the opposite of the performance of the S&P CME Bitcoin Futures Index. In June the fund fairly soared, rising 10.32%.
But as with all things crypto, tread carefully. In the past week the fund slid 1.96%.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
