Bitcoin with Bubblewrap: Calamos Preps Laddered ETFs

Calamos is planning to take Bitcoin investing to a new level, and it wants to offer ETF customers a ladder to get there.

The company this week filed for approval from the Securities and Exchange Commission to offer three new exchange-traded funds: the Calamos Laddered Bitcoin Structured Alt Protection, Laddered Bitcoin 80 Series Structured Alt Protection; and Laddered Bitcoin 90 Series Structured Alt Protection ETFs. They would be the latest in the firm’s suite of Bitcoin ETFs that offer varying levels of downside protection, a product line Calamos launched earlier this year. Providing exposure to Bitcoin with limits on losses (and upside) can appeal to financial advisors and investors who have been interested in crypto, but leery of the volatility, said Matt Kaufman, head of ETFs at Calamos.

“The financial advisory community hasn’t adopted Bitcoin or crypto in a large way,” he said. “This creates a bridge into Bitcoin for people who otherwise wouldn’t approach it.”

Step by Step, Bitcoin by Bitcoin

The proposed ETFs would use options and have exposure to the prices of up to five ETFs: the iShares Bitcoin Trust ETF (IBIT), Grayscale Bitcoin Mini Trust (BTC), Bitwise Bitcoin ETF (BITB), Fidelity Wise Origin Bitcoin Fund (FBTC) and Ark 21 Shares Bitcoin ETF (ARKB). The funds are “laddered” in the sense that they would invest in underlying Bitcoin ETFs with different target outcome periods, meaning diversification in the timeframes in which they are exposed to different Bitcoin ETFs, according to the prospectuses. What makes the downside protection compelling is that investors may feel comfortable allocating more than the 1% to 2% to Bitcoin that asset managers have recommended, Kaufman said. That may also be the case for early-stage crypto investors, whose wealth has grown exponentially, and who now want to pull back on risk and trade pure Bitcoin holdings for the ETFs, he said.

“You can actually increase risk-adjusted returns in the portfolio,” he said.

The firm’s protected Bitcoin suite has grown in number of products and total assets since January:

• Calamos has nine such ETFs, providing downside protection at levels of 80% (40% upside limit), 90% (24.7% limit) and 100% (10% limit), with issuance dates starting in January, April and July.
• Assets in those funds represent about $130 million, according to the company.

Paying for Protection: Bitcoin ETFs, particularly those that provide novel investment strategies, might be the best fit for nonbelievers. “Although volatile, if you are investing in Bitcoin and are a believer in the asset, I’m not sure why you would want to cap your upside,” said Kevin Feig, a former head of risk at crypto exchanges Coinbase and Kraken, who founded advisory firm Walk You To Wealth. “Additionally, investors need to be aware of the expense ratio associated with these types of funds, especially considering that fees associated with existing Bitcoin ETFs are likely to reduce as the ability to hold Bitcoin, without the need for an ETF, becomes more widely available in retirement accounts.”