Bitcoin ETF creativity continues as SEC mulls spot products

ETF issuer Global X has filed for a crypto fund — albeit not a spot bitcoin ETF — marking the latest niche proposal in the absence of the approval awaited by many. 

The company’s proposed Bitcoin Trend Strategy ETF is a different iteration of a bitcoin futures ETF, the first of which came to market in October 2021.

The proposed fund would track the CoinDesk Bitcoin Trend Indicator Index, according to a filing submitted to the SEC last week — which “systematically and dynamically allocates between” bitcoin futures contracts and the Global X 1-3 Month T-Bill ETF (CLIP). The idea appears to be to flip between bitcoin futures and Treasurys via risk-on or -off convictions. 

CoinDesk created its Bitcoin Trend Indicator (BTI) — designed to measure the directional momentum and strength in bitcoin’s price — in April. The related index is not yet publicly available.  

“The indicator’s ability to detect when bitcoin has strong price momentum and when it doesn’t is going to be key in deciding whether this strategy can outperform or not,” according to Sumit Roy, senior analyst at ETF.com. “Given that this is a new indicator, only time will tell whether it works.” 

A Global X spokesperson declined to comment. 

Response to “crowded” spot bitcoin ETF race

Roy said the filing is likely a result of the “extremely crowded” spot bitcoin ETF race. TradFi giants like BlackRock and Fidelity — as well as half a dozen or so others — have active spot bitcoin ETF proposals in front of the SEC.

Read more: An approved spot bitcoin ETF could be ‘one of the largest launches in history’

“Realistically, there’s only going to be, at most, a few vanilla spot bitcoin ETFs that generate significant interest from investors,” Roy told Blockworks. “Investors are going to gravitate towards the same products and an issuer with a strong brand, scale and marketing muscle like BlackRock has a good chance to dominate that space.”

Other issuers can differentiate through more niche products like Global X’s latest proposal, industry watchers said — adding that some trend-following ETFs have generated decent demand. 

The Pacer Trendpilot US Large Cap ETF (PTLC), for example, which launched in 2015, has more than $2 billion in assets under management. Using a similar strategy, PTLC uses trend following to switch its exposure between equities and Treasury bills.

Bryan Armour, a director of passive strategies at Morningstar, told Blockworks that given its ability to flip to greater Treasury bills exposure, the ETF seems to target investors fearful of incurring big losses in bitcoin-related investments.

“A problem with quantitative tactical allocation strategies is that market timing is extremely challenging, and these strategies don’t always perform as you would expect,” Armour said. “Downside risk certainly remains, and investors may miss out on bitcoin gains if the strategy keeps them in T-Bills at the wrong time.”

Niche, “sometimes weird” crypto funds piling up

Neena Mishra, director of ETF research for Zacks Investment Research, said she is surprised a product like the planned Global X Bitcoin Trend Strategy ETF doesn’t already exist.

While various ETFs holding crypto- and blockchain-related equities have traded for several years, more recent products have broken new ground.

Volatility Shares last month brought to market its 2x Bitcoin Strategy ETF (BITX) the first leveraged bitcoin futures ETF in the US. The fund, down about 13% since launch, has gathered $27 million in assets.

Bitwise in March launched its Bitcoin Strategy Optimum Roll ETF (BITC), which looks to present a twist on bitcoin futures funds that invest in front-month CME bitcoin futures contracts. 

BITC is designed to select futures contracts with the lowest level of contango — when the projected price of a commodity under a futures contract is valued above the asset’s spot price. 

“Fund providers are constantly experimenting with new products, trying to see what resonates with investors,” she said. “This is why we continue to see so many niche, interesting, and sometimes weird products.”

Global X previously tried to launch a spot bitcoin ETF — a bid blocked by the SEC last year. Scott Helfstein, Global X’s head of thematic solutions, told Blockworks last month the firm could seek to offer that type of product again “if the environment were to set up in the right way.”

Read more: Crypto is a ‘long-term play’ we’re building out now: Global X exec

The New York-based company has 108 ETFs trading in the US with roughly $43 billion in combined assets under management, according to ETF.com.  

The risk-off mechanism makes the fund different from Global X’s other bitcoin-related ETFs, according to Armour.

“It could be a long time, if ever, before a spot bitcoin ETF is approved,” he said. “So Global X appears to be offering something for bitcoin-enthused investors to add to their portfolio in the meantime.”

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