Mutual Funds: Should They Invest In Bitcoin?

Bitcoin has emerged as one of the best-performing assets in history for early adopters, despite its volatile price swings. This has led to a surge in investor demand for financial instruments that provide exposure to Bitcoin. While there are no Bitcoin mutual funds or ETFs, there are other ways to gain exposure to the cryptocurrency, such as the Grayscale Bitcoin Trust, which pools investor money to buy Bitcoin. Another option is the ProFunds Bitcoin Mutual Fund, which offers a new way to invest in Bitcoin without actually buying any. These funds provide investors with the opportunity to profit from Bitcoin's wild price swings, but it's important to note that they come with certain risks and considerations, such as high fees and price volatility.

Grayscale Bitcoin Trust (GBTC)

The Grayscale Bitcoin Trust (GBTC) is a passive investment vehicle that provides investors with exposure to Bitcoin. Established in 2013, it was the first publicly-traded Bitcoin fund in the US. GBTC is not a fund registered under the Investment Company Act of 1940 and is not subject to regulation under this Act, unlike most mutual funds or ETPs.

The trust's objective is to reflect the value of the underlying Bitcoin held by the Trust, less expenses and other liabilities. It is solely and passively invested in Bitcoin and does not trade, buy, sell or hold Bitcoin derivatives, including Bitcoin futures contracts. GBTC is sponsored by Grayscale, a leading crypto asset manager. The trust is open only to accredited and institutional investors.

GBTC was initially offered through a private placement and began trading publicly on OTC Markets under the symbol GBTC in 2015. It uplisted to NYSE Arca as a spot Bitcoin ETP in 2024, allowing investors to purchase shares through their brokerage accounts. The trust has a management fee of 2%, which was previously 1.5%.

As of October 17, 2023, GBTC had $17.7 billion worth of assets under management (AUM). The custodian for the fund's assets is Coinbase Custody Trust Company, LLC. GBTC trades in OTC markets and is available through many brokerages and tax-advantaged accounts like individual retirement accounts (IRAs) and 401(k)s.

Valkyrie Bitcoin Miners ETF (WGMI)

The Valkyrie Bitcoin Miners ETF (WGMI) is an actively-traded fund on the Nasdaq exchange, which debuted in February 2022. As of October 17, 2023, the fund had an AUM of $13.59 million and an expense ratio of 0.75%.

The Valkyrie Bitcoin Miners ETF is unique in that it does not directly invest in Bitcoin or other cryptocurrencies. Instead, it invests in companies involved in the Bitcoin ecosystem, such as mining on the Bitcoin blockchain. The fund's strategy is to invest at least 80% of its net assets in securities of companies that derive at least 50% of their revenue or profits from bitcoin mining operations and/or from providing specialised chips, hardware, software, or other services to companies engaged in bitcoin mining.

The fund's top holdings as of October 17, 2023, included Marathon Digital Holdings Inc. (10.88%), Riot Platforms (10.08%), Cipher Mining Inc. (9.71%), Hive Blockchain Technologies (9.20%), and Bit Digital, Inc. (8.94%).

The Valkyrie Bitcoin Miners ETF provides investors with exposure to the Bitcoin ecosystem without directly investing in the cryptocurrency itself. It offers a way for investors to gain access to the emerging bitcoin economy through a traditional actively managed exchange-traded fund.

VanEck Bitcoin Strategy ETF (XBTF)

Bitcoin investment vehicles have been created by brokers to meet investor demand for financial instruments that provide exposure to Bitcoin. One such investment vehicle is the VanEck Bitcoin Strategy ETF (XBTF).

The VanEck Bitcoin Strategy ETF (XBTF) is a fund that invests in Bitcoin futures and US Treasuries. The fund does not invest directly in Bitcoin or other digital assets. Instead, it purchases and sells Bitcoin futures to provide investors with exposure to Bitcoin prices while reducing the risk and expenses of owning Bitcoins. The fund also holds US Treasuries and will invest in money market funds, cash, or cash equivalents to provide it with the liquidity, collateral, or margin needed to deal with Bitcoin price fluctuations.

The VanEck Bitcoin Strategy ETF (XBTF) debuted in November 2021 and is actively managed. It offers exposure to Bitcoin-linked investments through a regulated, exchange-traded vehicle. As of October 17, 2023, the fund had $46.97 million in net assets and operating expenses of 0.66%. The fund's administrator is Van Eck Absolute Return Advisers Corporation, and the custodian is State Street Bank and Trust Company.

VanEck is a global investment manager with offices around the world. The VanEck Bitcoin Strategy ETF (XBTF) is one of several investment products offered by VanEck that provides exposure to the digital assets ecosystem.

No Bitcoin mutual funds or ETFs

As of 2024, there are no Bitcoin mutual funds or ETFs. However, there are other ways to gain exposure to Bitcoin and the broader cryptocurrency market, such as investment trusts and futures contracts.

Investment Trusts

Bitcoin investment trusts are a popular way for investors to gain exposure to Bitcoin. These trusts hold Bitcoin on behalf of investors, tracking the prices of Bitcoin and other cryptocurrencies. They also trade in over-the-counter (OTC) markets and offer investors exposure to the cryptocurrency market without the need to directly purchase and hold Bitcoin. An example of a well-known investment trust is the Grayscale Bitcoin Trust (GBTC), which has been operating since 2013.

Futures Contracts

Another way to gain exposure to Bitcoin without directly purchasing it is through futures contracts. Bitcoin futures allow investors to speculate on the future price of Bitcoin without actually owning the underlying asset. These contracts are traded on exchanges such as the Chicago Mercantile Exchange (CME).

ETFs Holding Crypto-Related Companies

While there are no Bitcoin ETFs that hold Bitcoin directly, some ETFs invest in companies involved in the Bitcoin and cryptocurrency industry. These ETFs provide indirect exposure to the Bitcoin market by holding shares of companies that are active in the space, such as mining companies or crypto exchanges.

Final Thoughts

In summary, while there are no Bitcoin mutual funds or ETFs in the traditional sense, investors seeking exposure to Bitcoin have several options available to them. These include investment trusts, futures contracts, and ETFs that hold crypto-related companies. It is important to note that investing in Bitcoin and cryptocurrencies carries significant risk due to the volatile nature of the market, and it is always advisable to conduct thorough research before investing.

ProFunds' BTCFX

The Bitcoin Strategy ProFund (BTCFX) is a mutual fund that seeks investment results corresponding to bitcoin returns. The fund aims to achieve this by investing in bitcoin futures contracts, without investing directly in bitcoin. This means that it does not seek exposure to the current "spot" or cash price of bitcoin. Instead, it focuses on managed exposure to bitcoin futures, aiming for capital appreciation.

BTCFX has provided a return of 63.17% over the past year, with a 52-week range of 11.49 to 23.90. The fund's total net assets are valued at $108.30 million, and it has an expense ratio of 1.35%, which is slightly below the category average of 1.44%.

BTCFX is classified as non-diversified, meaning it can invest a significant portion of its assets in financial instruments with a single counterparty or a few counterparties. The fund was established on July 28, 2021, and has a minimum investment requirement of $1,000 for both individuals and financial professionals.

BTCFX's investment strategy involves investing in bitcoin futures contracts, Canadian exchange-traded funds (ETFs), and money market instruments. It may also engage in reverse repurchase agreements and maintain cash balances in money market instruments. The fund does not take temporary defensive positions but holds its bitcoin futures contracts during both rising and declining markets.

In summary, BTCFX offers investors exposure to bitcoin returns through managed investments in bitcoin futures contracts and related instruments. It provides a way to invest in the digital asset without directly purchasing bitcoin itself.

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