Investing

What are the best bitcoin ETFs?

How to invest in cryptocurrency like bitcoin using an exchange traded fund (ETF) on the ASX.

With almost AU$3 trillion worth of cryptocurrency (crypto) assets in circulation, bitcoin and cryptocurrency generally are becoming a fast-growing asset class that is attracting investors. 

While there are currently no exchange traded funds (ETFs) listed in Australia that give underlying exposure to direct cryptocurrencies like Bitcoin or Ethereum, there are two ETFs that can give investors access to companies engaged in the crypto sector. 

There are two Australian ETFs available for investors to gain exposure to crypto: 

  • BetaShares Crypto Innovators ETF (CRYP) – available on the ASX
  • Cosmos Global Digital Miners Access ETF (DIGA) – available on CBOE Australia (formerly known as Chi-X).

ETF Securities has just launched Australia’s first spot Bitcoin and Ethereum ETFs. These two ETFs are physically backed, the coins are held in cold storage via Coinbase. We will look at reviewing these two ETFs in a few months’ time.

  • ETFS 21Shares Bitcoin ETF (EBTC)
  • ETFS 21Shares Ethereum ETF (EETH)

Cosmos Asset Management has also been in the running to launch the first Bitcoin ETF in Australia.

Stockspot reviews and compares more than 250 ETFs in our annual Stockspot ETF Report. In this article, we road test the best cryptocurrency ETFs in Australia across a range of different metrics to provide our analysis on the most suitable choice for investors.

Size

Both CRYP and DIGA were launched in late 2021. Since then, CRYP has become the largest crypto ETF, by size, with $129 million. It broke the record for the fastest Australian ETF to reach $100 million from investors, achieving that milestone four days after launching. DIGA has struggled to gain traction, only attracting $2 million to date.

Costs and slippage

CRYP is the lowest cost crypto ETF with a management fee of 0.67% p.a. DIGA is more expensive, charging 0.90% p.a.

The spreads of DIGA are a whopping 1.94% due to its limited trading volume, the nature of the portfolio having high turnover (i.e. more actively managed) and less liquidity, and the number of market makers, whereas CRYP’s spreads are more contained at 0.33%.

TICKER CODEMANAGEMENT FEEBUY/SELL SPREADS (SLIPPAGE)
CRYP0.67%0.33%
DIGA0.90%1.94%

Liquidity

CRYP is the most liquid crypto ETF, trading almost $1.2 million in average daily volume. DIGA has limited liquidity only trading around $12,000 daily. By comparison, some of the most popular global share ETFs trade up to $13 million daily.

Returns and track record

As both CRYP and DIGA only recently launched, they do not have a long-standing track record to adequately measure performance. Since their launching, CRYP has fallen ~44% while DIGA has fallen ~59%.

Research shows that new ETFs often launch just as retail interest is peaking and before a period of poor returns. We spoke to the AFR about this phenomenon just as these crypto currency ETFs were launching and they seem to be following this pattern. This is one reason that we avoid niche thematic ETFs for clients as they are launching.

While some cryptocurrencies have had meaningful gains historically, they can also go through periods of large and severe price declines (such as 2011, 2015, 2018 and early 2022).

Ticker CODEINDEXIndex InceptionETF inceptionIndex 1 Year ReturnIndex 3 Year ReturnIndex 5 Year Return
CRYPBitwise Crypto Innovators IndexDecember 2019November 2021-43.4%N/AN/A
DIGAGlobal Digital Miners Access IndexJuly 2021October 2021N/AN/AN/A
N/A indicates not enough track record given the recent inception of the index. Data as of 31 March 2022

Exposure and holdings

While both CRYP and DIGA track crypto companies, the way they select these companies differ. 

CRYP holds 27 companies, with the top 10 making up 76% of the ETF. It splits its holdings across two company tiers. 

Tier 1 (comprising 85% of the ETF) are pure-play cryptocurrency companies that derive at least 75% of their revenue from servicing the crypto market (e.g. mining, equipment, financial services.) and have at least 75% of their assets in cryptocurrencies such as Bitcoin or Ethereum.

Tier 2 (comprising 15% of the ETF) are supporting companies with at least one dedicated initiative focused on the crypto system such as purchasing, selling, custody, mining, trading, and transaction processing.

This second tier means CRYP may hold companies not normally associated with crypto such as PayPal, Square, and NVIDIA. CRYP is mainly concentrated in Northern America (~80% of the portfolio) but does have some exposure to Germany, China, Singapore, and Japan.

CRYPDIGA
# Holdings2720
Weighting in top 10 holdings76%92%
Maximum single stock exposure10%15%
Rebalance frequencyQuarterlyMonthly
Distribution frequencyAnnually Annually 
Weighting methodologyMarket capitalisation and equal weightingMarket capitalisation

DIGA holds only 20 companies with the top 10 making up 92% of the ETF, meaning it is much more concentrated and less diversified. It is much more actively managed with their investment committee meeting every fortnight and potentially changing the holdings monthly. DIGA holds companies that have at least 80% of their revenues generated from sectors such as blockchain technology and digital mining infrastructure. DIGA has more geographical diversification with a larger exposure in China and the UK but is still heavily skewed towards North America (~80% of the portfolio.)

There is a large overlap of holdings between CRYP and DIGA with CRYP holding 77% of the companies in DIGA. Notable exceptions in underlying companies are CRYP holding Coinbase and MicroStrategy, which DIGA has no exposure to.

Verdict and conclusion

Rather than giving investors pure exposure to cryptocurrency, these ETFs invest in companies involved in the cryptocurrency industry. Investors shouldn’t expect these ETFs to mimic the price movements of the underlying digital currencies, and therefore may see some difference in returns. Unlike other markets like gold miners, the crypto market is not yet mature and there are only a limited number of publicly-traded companies in the world. Many of the larger cryptocurrency exchanges are still privately owned businesses while the listed companies are relatively small in size.

Both CRYP and DIGA give exposure to companies involved in the crypto market and have similar underlying holdings. CRYP provides more diversification by allowing non-pure play companies, compared to DIGA which is solely focused on crypto players. 

Australian investors will need to wait for an ETF to be approved that provides underlying exposure to cryptocurrencies, but they may not need to wait long with Australian regulators recently expressing a positive view. 

High-octane, and therefore highly speculative, investments like crypto ETFs can be the extra hot sauce in your portfolio to juice up returns, but can sometimes leave investors burnt if they invest too much. We recommend that if you want to invest in cryptocurrency, it should only account for a small part of your portfolio, with the majority of your money invested in a low-cost diversified strategy like the portfolios we offer at Stockspot.

Stockspot builds you a diversified portfolio of low-cost index ETFs to help you grow your wealth

Investment Manager

Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

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