A New Active Bitcoin ETF for Long-term Investors

Many futures funds use a front-month methodology, which involves investing rolling over futures each month. While that provides more liquidity, minimizes time delay and lowers carry costs for short-term traders, it often results in high costs for long-term investors due to higher transaction costs and abnormal market conditions like contango.

For example, rolling over futures contracts involves selling an expiring contract and buying a new one, incurring transaction costs and paying the bid/ask spread. Like returning and renting a new car, these costs can quickly add up if done frequently. By rolling over less regularly, investors can reduce these transaction costs while providing exposure.

Futures contracts may also experience contango, where futures prices are higher than the spot market. Like trying to rent a car in peak season or high demand periods, these dynamics can lead to unnecessarily high costs. By strategically choosing futures contracts, experienced fund managers can avoid these problems and become more cost-efficient.

Long-term futures investors often leverage an “optimal roll” strategy to address these issues. They can efficiently maintain exposure to an underlying asset while considering factors like trading costs, liquidity, market conditions and the term structure of futures contracts. For example, they may diversify across contract maturities.

Most Bitcoin ETFs use a front-month methodology, but Bitwise Asset Management’s Bitwise Bitcoin Strategy Optimum Roll ETF (BITC) leverages an “optimal roll” strategy that long-term investors may find more suitable. And historically, “optimal roll” strategies in other commodities have outperformed their forward-month counterparts.

“We believe this same strategy can apply to the Bitcoin futures market as it continues to deepen and evolve,” says Bitwise CIO Matt Hougan. “With the Bitwise Bitcoin Strategy Optimum Roll ETF, we’re excited to cater to long-term-oriented investors looking for regulated vehicles to gain directional Bitcoin exposure.”

For tax reporting purposes, the “1940’s Act” ETF will issue a Form 1099 rather than the longer and more complex K-1, making it easier for long-term investors to manage.

Bitwise also offers several adjacent ETFs, including:
 

• The Bitwise Crypto Industry Innovators ETF (BITQ)
• The Bitwise Web3 ETF (BWEB)
• The Bitwise 10 Crypto Index Fund (BITW)

The SEC doesn’t permit physical Bitcoin ETFs yet, pushing many crypto ETFs toward futures contracts for direct exposure. While most futures contracts use front-month methodologies favoring short-term traders, the newly launched Bitwise Bitcoin Strategy Optimum Roll ETF (BITC) leverages an “optimal roll” strategy better suited for long-term investors.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.