The Floor Is Lava: BlackRock Joins Protected Bitcoin ETF Party

Those looking for bitcoin without the bust may soon have a new option.

BlackRock on Monday filed for a buffered bitcoin fund, the firm’s foray into the world of structured protection for crypto and its third bitcoin fund — the other two being the iShares Bitcoin Trust ETF (IBIT) and iShares Bitcoin Premium Income ETF (BITA). The iShares Bitcoin Managed Protection ETF (PBIT) will give investors 10% downside protection in the form of three overlapping options tranches. The move signals the fund manager’s willingness to use options to mitigate risk even for cryptocurrencies, especially given the digital asset’s volatility: Bitcoin is down over 35% from the record price of $126,080 last October.

“This is a notable step for a manager like BlackRock,” said Bilal Little, global ETF strategist at Direxion and a former BlackRock employee. “A firm like BlackRock thinks very hard about portfolio construction, so they think about how these asset classes fit together.”

Buffer Buffet

Buffered crypto products are the latest innovation in digital assets, which have been dominated by BlackRock’s IBIT — a fund that recently had its largest single-day inflow in a year. Using options to mitigate risk is one part of BlackRock’s strategy, but using volatility for income premium is the other half of the equation, Little said. “Investors today want income, stability or growth — one of those three,” he said. “They’ll give up some upside within the option to get a guaranteed rate of return. … That’s why you see issuers launch [volatility managed bitcoin funds] today.” A buffered crypto product might also serve as a counter to offerings like leveraged bitcoin funds, which have also been launching left and right.

Other firms have their own volatility-managed bitcoin ETFs:

• Calamos offers a series of laddered structured protection bitcoin ETFs. These include the Calamos Laddered Bitcoin Structured Alt Protection ETF (CBOL), Laddered Bitcoin 90 Series Structured Alt Protection ETF (CBXL) and Laddered Bitcoin 80 Series Structured Alt Protection ETF (CBTL).
• Innovator has its Uncapped Bitcoin 20 Floor ETF (QBF), which provides exposure to bitcoin with a 20% downside floor.
• FT Vest’s line of Bitcoin Strategy Floor15 ETFs use a similar strategy, albeit with a current cap of nearly 27% and floor of 15%.

Room to Grow. There’s no dominant player yet in buffered crypto ETFs, said Grant Ogard, a portfolio manager at BufferLabs. Investors who haven’t gotten into crypto before are more likely to get into these types of funds, he added.

“There’s a lot of potential there because the audience for bitcoin is a little narrower than the audience for buffered bitcoin,” Ogard said. “People get afraid when they hear crypto … so there’s a lot of appetite for a differentiated asset but with a more pleasing risk level.”