Bitwise's Fund Joins NYSE Arca: Understanding the 90% Dependence on BTC and ETH

On December 9, Bitwise Asset Management announced an important development for the Bitwise 10 Crypto Index ETF (BITW), the world’s longest-running crypto index fund. By uplisting to the NYSE Arca as an Exchange-Traded Product (ETP), Bitwise aims to enhance liquidity and market efficiency for investors. However, although it offers a more structured framework, BITW still carries significant risks.

Key Takeaways

Bitwise 10 Crypto Index ETF (BITW) uplisted to NYSE Arca on December 9, shifting from an OTC market to a regulated exchange.
BITW predominantly invests in Bitcoin (74.34%) and Ethereum (15.55%), meaning nearly 90% of its value is tied to these two cryptocurrencies.
Although it operates under a different structure, BITW does not offer the same protections as traditional ETFs, as it does not register under the Investment Company Act of 1940.
Executives from Bitwise believe that index investing will gain popularity as a way for investors to gain exposure with reduced risk of predicting market winners.
The market is evolving with new, sophisticated financial strategies emerging for crypto investments.

Bitwise 10 Crypto Index ETF

Bitwise’s Transition to NYSE Arca

On December 9, Bitwise Asset Management made a significant announcement regarding the Bitwise 10 Crypto Index ETF (BITW). Known as the world's longest-running crypto index fund, BITW will now uplist to the NYSE Arca, transitioning to an Exchange-Traded Product (ETP). This change represents a substantial structural upgrade, moving from the less transparent over-the-counter (OTC) market to a fully regulated exchange.

Enhancements in Liquidity and Efficiency

The uplisting to NYSE Arca promises to enhance liquidity and pricing efficiency for investors looking to explore the digital asset market broadly. Although this step is anticipated to improve BITW's access and performance, it is essential to note that its investment structure has critical caveats. BITW is not registered under the Investment Company Act of 1940, meaning it lacks the protections and oversight that typically come with traditional ETFs. It serves as a pass-through vehicle, allowing investors to gain indirect exposure to highly volatile assets. In simpler terms, while this vehicle may feel more conventional, the intrinsic risks remain, and investors are cautioned that they could potentially lose their entire investment.

Insights from Bitwise Executives

Commenting on this development, Matt Hougan, Chief Investment Officer of Bitwise, stated, "Most investors we meet are convinced crypto is here to stay, but they don’t know who the winners will be or how many will succeed." He further emphasized that the index approach allows investors to invest in the broader thesis without needing to forecast specific outcomes, assuring that BITW will hold the largest and most successful market assets.

Echoing his sentiment, Hunter Horsley, CEO of Bitwise, remarked, "We believe index investing through BITW will become one of the most popular ways for investors to gain exposure. Bitwise has an eight-year track record of enabling access to this space for investors, and we’re excited to continue that journey."

Current Asset Allocation in BITW

Upon its uplisting, a review of BITW’s holdings revealed the ongoing concentration within the crypto market, despite the fund's diversified positioning. As of uplisting, the fund contained ten assets, with Bitcoin making up 74.34% and Ethereum (ETH) accounting for 15.55%. Consequently, nearly 90% of the index's value is reliant on just these two cryptocurrencies. The remaining eight assets contribute significantly less, with XRP at 5.17%, Solana at 3.07%, and smaller allocations in Cardano (ADA), Chainlink (LINK), and Avalanche (AVAX) making up less than 10%.

Through this approach, Bitwise seeks to alter crypto's "Wild West" image by implementing a structured, rule-based framework that enhances its index's institutional credibility.

Market Reactions and Emerging Strategies

The uplisting of BITW coincides with a notable market momentum, as evidenced by considerable gains in its core holdings. For example, Bitcoin rose by 2.63% to $92,577.03, and Ethereum increased by 6.8% to $3,320.83 within a 24-hour period. Other notable assets, including prominent altcoins like XRP, increased by 0.87%, while Solana surged 3.51%, and ADA witnessed an impressive 8.78% gain.

However, the market is transitioning to newer frontiers of complexity. According to Bloomberg analyst Eric Balchunas, a novel U.S. ETF proposal is aiming for approval involving a specialized timing-based Bitcoin strategy that buys only after U.S. markets close and sells when they open. This strategy leverages the historical "overnight premium" often captured during active Asian and European market sessions, highlighting the rapid evolution of crypto financial products.

Closing Thoughts

All these developments indicate that the crypto ETF market is quickly progressing beyond basic holdings and moving into an era characterized by sophisticated, tactical strategies aimed at institutional investors. The landscape is transforming, and Bitwise's uplisting to NYSE Arca is a significant step towards enhancing credibility and market participation in the growing crypto ecosystem.