Bitwise’s Strategic Move: Introducing the Bitcoin Standard ETF
Bitwise, a prominent name in digital asset management, has made a significant announcement with the submission of a new registration statement to the US Securities and Exchange Commission (SEC) on December 26, 2024. This filing seeks approval for the “Bitwise Bitcoin Standard ETF,” a groundbreaking fund designed to invest in companies heavily involved in Bitcoin transactions and holdings.
The fund aims to channel investments into publicly traded enterprises that either possess substantial Bitcoin reserves or generate a significant portion of their revenue from Bitcoin-related activities. According to the filing, “The Adviser believes that investing in equities of companies with substantial BTC-related business or assets can provide exposure to the performance of Bitcoin while mitigating challenges such as custody, regulatory constraints, and liquidity concerns.”
Eligibility Criteria for Investing in Bitcoin Powerhouses
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At the heart of this proposal lies a stringent eligibility framework. To be considered for inclusion in the ETF, companies must meet specific criteria: they need to hold a minimum of 1,000 BTC in their reserves, boast a market capitalization of at least $100 million, and have daily trading liquidity exceeding $1 million. Additionally, the privately held portion of the company’s stock must remain under 10%.
These rigorous standards aim to concentrate the ETF’s exposure on well-established firms that demonstrate a genuine commitment to Bitcoin, both strategically and financially. Bitwise emphasizes that this approach not only ensures investor protection against liquidity risks but also safeguards against potential governance issues.
A Novel Weighting Approach to Bitcoin Holdings
Distinguishing itself from traditional market-cap weighting, Bitwise’s Bitcoin Standard ETF employs an innovative weighting method. This method prioritizes the market value of each company’s Bitcoin reserves, with a cap of 25% per firm to prevent excessive concentration. As stated in the filing, “The Fund’s weighting process will focus on the estimated market value of each company’s Bitcoin reserves, with individual constituents capped to avoid excessive concentration.”
For example, MicroStrategy, a business intelligence firm, currently holds approximately 444,262 BTC in its reserves. Despite having a smaller market capitalization than Tesla, MicroStrategy’s substantial Bitcoin treasury could potentially grant it a higher weighting compared to Tesla, which holds around 11,509 BTC.
Investment Strategy and Market Reactions
The filing indicates that the fund will allocate at least 80% of its net assets to equity securities of what Bitwise terms Bitcoin Standard companies. However, it retains the flexibility to hold short-term instruments like cash to maintain liquidity. “Under normal market conditions, the Fund intends to invest at least 80% of its net assets in the equity securities of companies that hold significant BTC on their balance sheets or generate a material portion of their revenues from Bitcoin-related activities,” the document elaborates.
The community has responded positively to this development. Nate Geraci, President of The ETF Institute, commented via social media platform X: “The btc treasury operations virus is spreading.” James McKay, founder of McKay Research, added, “You know the ‘thing’ is important when exposure to a thing that owns the thing is getting its own wrapper.”
Competitive Landscape: Strive Asset Management’s Entry
On the same day that Bitwise submitted its filing, Strive Asset Management, led by Vivek Ramaswamy, made headlines with its own Bitcoin-focused ETF proposal. The Strive Bitcoin Bond ETF aims to target convertible bonds from companies with significant Bitcoin holdings, such as MicroStrategy.
As of the latest update, Bitcoin was trading at $94,857, indicating its continued relevance in the financial landscape.
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