What’s Next in Bitcoin ETFs? Volatility Funds
The crypto ETF world is evolving far beyond spot-price funds, a segment dominated by iShares.
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Want to ride bitcoin’s wild price swings? Forward, backward or twice as high?
Two firms filed last week for lines of bitcoin volatility ETFs. CoinShares and Volatility Shares are prepping funds with 1x, 2x and 1x-inverse exposure to the CME CF Bitcoin Volatility Index via futures contracts. They could serve as portfolio hedges, though volatility funds don’t necessarily work best as long-term holdings, said Eric Balchunas, senior ETF analyst at Bloomberg.
“In the stock market, nothing is a better hedge than VIX,” he said. “When it comes to volatility ETFs, it’s probably wise to use them in the short term, because they have a corrosion factor.”
Buy the Ticket, Take the Ride
The funds are among the latest developments in a crypto ETF market seeking opportunities well beyond spot bitcoin, a category dominated by iShares and its $52 billion Bitcoin Trust ETF (IBIT). While there aren’t any serious threats to BlackRock’s market share, a forthcoming bitcoin ETF from Morgan Stanley will benefit from the bank’s vast network of advisors, as well as a low fee of 14 basis points. “This is probably the most interesting development in the bitcoin ETF space this year,” Balchunas said of Morgan Stanley’s entrance to the market. “Making it 14 bps completely eradicates any excuse [for their advisors] to not use the Morgan Stanley ETF.”
For the proposed bitcoin volatility ETFs, a look at the recent performance of the VIX is illuminating, he noted:
- The VIX has tumbled 24% over the past 12 months.
- But over the past month, it’s up 28%.
- The VIX rose 27% on March 6 alone, during which the S&P 500 was down less than 1%, highlighting the possible amplitude of volatility compared with a stock index.
Bitcoin by Bitcoin: Other developments include leveraged bitcoin ETFs, crypto index funds and products that mix bitcoin holdings with other assets. One big manager that has stayed out of the game until recently is T. Rowe Price, which is now preparing an actively managed crypto ETF that will invest in a variety of currencies. “Bitcoin is getting the full ETF treatment. That means leverage, that means covered calls, that means themes,” Balchunas said. “The ETF is going to bend over backward trying to throw every way to trade bitcoin at you.”
