Exchange Traded Funds (ETFs)

ETF Talk: ‘Mining’ a Cryptocurrency ETF

About a year ago, Reason magazine posted a debate between Alex Gladstein and Lawrence White entitled “Bitcoin Is an Effective Tool for Liberty.” Alex argued the affirmative, pointing out Bitcoin’s allure in the Global South, where the official exchange rate is far higher than the exchange rate on the street, not to mention the empowerment that Bitcoin can give to those apostles of liberty who hold it — a form of exchange out of reach from governmental control. Lawrence argued the negative, stating that Bitcoin is not going to be replacing fiat money anytime soon, and pointing out that gold would be a far better tool to advance liberty than it.

Who won? You decide.

In our most recent sojourn, FreedomFest, we had our own debate on the future of Bitcoin — which I attended and can assure you was just as intellectually thrilling as the one in Reason. While the schedule for this year’s FreedomFest has yet to be posted, I am confident that discussions, questions and ideas about this new form of currency will very likely return — and in many more FreedomFests to come.

Perhaps you may want to add Bitcoin or other cryptocurrencies to your investment portfolio, but in an indirect (and therefore less risky) form. The good news is that, as my Successful Investing subscribers know (and if you aren’t one, why aren’t you?), there’s an exchange-traded fund (ETF) for that: the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO).

The most important thing to underscore about BITO, though, is that although it aims to produce returns that correspond to Bitcoin’s price fluctuations, BITO’s basket contains no actual Bitcoin itself. It only invests in Bitcoin futures. The fund is actively managed and is set up to hold these futures contracts during times that Bitcoin is doing well and times when its value is falling.

Exclusive ETF Talk: Finding Value in Your Brokerage

As of Sept. 17, BITO has been down 0.11% over the past month and down 11.75% for the past three months. It is currently up 34.30% year to date.

Chart courtesy of www.stockcharts.com.

The fund has amassed $1.75 billion in assets under management and has an expense ratio of 0.95%.

At the same time, Bitcoin (like any commodity) has a flip side. The value of Bitcoin is always subject to gyrations due to factors beyond the fund managers’ control, including interest rates, the status of the global economy and much more. So, it’s important to carefully consider the risks and potential returns before making any investment decisions.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.