Is This Cryptocurrency ETF a No-Brainer Buy?

Want to go long on cryptocurrencies? You can always buy assets like Bitcoin or Ethereum directly. But the future of crypto can be hard to predict. The biggest winners over the next decade will be anyone's guess.

There is one way to profit from the rise of crypto without actually betting on crypto itself. That's by investing in businesses that sell the products and services that will help the crypto economy function. Chipmakers, miners, software developers, third-party payment processors, cloud computing providers -- all will be needed if the crypto economy takes off.

Want to invest in a basket of stocks that will directly benefit if crypto booms over the long term? Look no further than this little-known exchange-traded fund (ETF).

This crypto ETF gives you instant diversified exposure

The Bitwise Crypto Industry Innovators ETF (NYSEMKT: BITQ) was launched roughly three years ago, in May 2021. At the time, Bitwise Asset Management -- the creators and managers of the ETF -- described the fund as giving investors "exposure to valuable public companies that are participants in the growing bitcoin and cryptocurrency sector." The firm wanted to provide a way for "investors to gain exposure to the crypto market without the challenges of directly holding crypto assets like Bitcoin and Ethereum."

The strategy is simple: Track the performance of the Bitwise Crypto Industry Innovators 30 Index, which aims to invest in pure-play crypto companies and businesses with more than $100 million in crypto assets on their balance sheets. The current list includes 30 names. "Today, there's a growing set of public companies capitalizing on crypto, and more to come," explained Bitwise Chief Information Officer Matt Hougan. "BITQ aims to identify these businesses and give investors access."

The current portfolio is dominated by companies with direct ties to the crypto industry. Its two biggest positions, which total nearly 25% of the ETF's holdings, are MicroStrategy and Coinbase Global. These are two of the market's favorite crypto stocks. MicroStrategy, a data analytics company, currently has Bitcoin holdings worth around $14 billion. That's roughly half of its current enterprise value. Coinbase, on the other hand, operates one of the largest and most reputable crypto exchanges in the world.

If you're looking for instant crypto exposure, this ETF delivers that. But how has it performed since hitting the market in 2021?

Is this the best crypto ETF for you?

On paper, the Bitwise Crypto Industry Innovators ETF is a perfect fit for investors looking to gain exposure to the cryptocurrency economy.

But there's one serious problem: The ETF's performance over the last three years has been dismal. Over that time, Bitcoin's price has appreciated by 22%. The ETF, however, lost around 41% of its value. The S&P 500 actually performed better than both, rising 38% in value over the past three years.

^SPXTR Chart

^SPXTR data by YCharts.

There's another problem with the Bitwise Crypto Industry Innovators ETF: It's expensive.

Its expense ratio -- the amount you must pay the manager each year for the right to hold the ETF -- is 0.85%. Buying Bitcoin directly, for comparison, allows you to hold the asset for free into perpetuity. Many S&P 500 ETFs, meanwhile, have expense ratios below 0.1%. It sounds like a small disadvantage, but those fees can add up over time.

When you factor in this ETF's expenses, its total performance is even worse than the chart above suggests. The Bitwise Crypto Industry Innovators ETF may still be a viable option if you're looking for crypto exposure without actually buying cryptocurrencies, but its disappointing track record and high fees make it a poor fit for most investors.

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Ryan Vanzo has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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