First ETF With 'Crypto' in Name Starts Trading Wednesday on NYSE Arca

The first ETF with “crypto” in its name will start trading Wednesday on the New York Stock Exchange Arca. It’s the Bitwise Crypto Innovators ETF (BITQ) which will invest in the stocks of companies that “service and transact in the segment of the economy dealing with crypto assets and distributed ledger technology (e.g., blockchain technology),” according to the ETF’s SEC filing.

BITQ is a passive ETF using “rules-based screening” that provides exposure to the cryptocurrency market without investing directly in those assets.

According to the ETF’s filing with the Securities and Exchange Commission, BITQ will invest in companies with a minimum market capitalization of $100 million that derive more than 75% of their revenue directly from servicing or transacting in the crypto ecosystem or have more than 75% of their net assets accounted for by direct crypto asset holding and large-cap companies, with minimum market cap of $10 billion, that have dedicated business initiatives focused on the crypto ecosystem, as reported in reported in quarterly or annual filings from the past 12 months. The first segment comprises 70% of the index; the second group 30%.

The companies represented include operators of crypto asset trading platforms, custodians and wallets, financial services firms that leverage crypto assets or the blockchain channel, or service clients involved with crypto assets.

They also include crypto asset miners involved in distributed ledger infrastructure, tech companies providing hardware and software for the crypto ecosystems and companies that own a “material amount of crypto assets or generate substantial revenues from those assets or from distributed technology” — i.e. blockchain.

When the ETF’s top holdings were published after Wednesday’s launch, three companies — Coinbase Global, MicroStrategy and Galaxy Digital Holdings — accounted for almost 30% of the fund’s assets.

The expense ratio of BITQ is 0.85%. Bitwise Index Services is the index sponsor; Exchange Traded Concepts LLC is the ETF’s advisor; and the Bank of New York Mellon, the custodian and transfer agent.

Bitwise Funds

The Bitwise Crypto Innovators ETF is Bitwise’s first ETF to come to market. Applications for two other crypto-related ETFs, including a Bitcoin ETF, didn’t make it to market. Bitwise, however, currently sponsors five other crypto-related funds — Bitwise 10 Crypto Index Fund, Bitwise DeFi Crypto Index Fund, Bitwise Bitcoin Fund, Bitwise Ethereum Fund and Bitwise 10 Index Offshore Fund. Most are private placements available only to accredited investors but the Bitwise 10 Crypto Index Fund (BITW) is available to all investors on the over-the-counter market, and Bitwise has similar plans for its Bitcoin fund.

The new ETF will compete with two other crypto ETFs on the market: the Amplify Transformational Data Sharing ETF (BLOK), which has an expense ratio of 0.71%, and the VanEck Vectors Digital Transformational ETF (DAPP) whose fees are 0.65%.

Though more expensive, BITQ “rebalances to 85% ‘pure play’ monthly,” says Dave Nadig, director of research and chief investment officer at ETFTrends.com. “You can’t call your fund something unless your investments are at least 80% that something, so that means they get to call this a ‘crypto’ fund.”

Bitcoin-related investments are in high demand, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA, noting the popularity of BLOK, which has benefited from the rising value of blockchain securities. That could bode well for BITQ.