In a groundbreaking move, Bitwise Asset Management, a leading player in the Bitcoin investment space, has announced plans to revamp three of its key digital asset futures exchange-traded funds (ETFs).
The firm will shift these ETFs to a new model that dynamically rotates between digital assets and U.S. Treasuries. This strategy, set to take effect by December 3, 2024, aims to reduce volatility while potentially improving risk-adjusted returns for investors.
The three ETFs undergoing this transformation are the Bitwise Bitcoin Strategy Optimum Roll ETF (BITC), the Bitwise Ethereum Strategy ETF (AETH), and the Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP).
Once the changes are made, these funds will be rebranded as the Bitwise Trendwise Bitcoin and Treasuries Rotation Strategy ETF (BITC), the Bitwise Trendwise Ethereum and Treasuries Rotation Strategy ETF (AETH), and the Bitwise Trendwise BTC/ETH and Treasuries Rotation Strategy ETF (BTOP).
The crux of this change lies in Bitwise’s effort to add flexibility to its ETF strategies, making them more responsive to market trends.
Rather than sticking to the current long-only approach, where the funds remain fully invested in bitcoin futures regardless of market conditions, Bitwise’s new “Trendwise” strategy will allow these funds to shift between bitcoin and U.S. Treasuries based on market performance.
Bitwise Chief Information Officer Matt Hougan explained:
“The goal is to help minimize downside volatility and potentially improve risk-adjusted returns.”
The strategy will rely on technical indicators, such as the 10- and 20-day exponential moving averages (EMA) of bitcoin prices, to guide these shifts.
This approach is designed to help investors ride the wave of bitcoin market gains while offering protection during downturns by leaning on Treasuries. Hougan added:
“Momentum is a well-established factor in virtually every asset class, and it is powerful in crypto as well. The new Trendwise strategies capitalize on that momentum through a trend-following strategy that rotates between crypto and Treasuries exposure based on market direction.”
Bitcoin markets are notoriously volatile. While many investors are attracted to the high return potential of assets like Bitcoin, the frequent price swings can lead to significant losses during market downturns.
Bitwise’s new strategy seeks to address this concern by offering a more stable investment option that adjusts based on market conditions.
Bitcoin market analyst Joe Consorti, praised Bitwise’s decision.
He highlighted, “This is massive news for Bitcoin as a macro asset. US Treasuries are the preferred asset for all of the world’s financial institutions. Adding bitcoin to a rotating investment vehicle will juice UST returns and be an enticing diversifier for UST-heavy balance sheets.”
He pointed out that U.S. Treasuries are a favored investment vehicle among institutional investors, and adding bitcoin to a strategy that includes Treasuries could make the digital asset more attractive to large-scale investors with Treasury-heavy portfolios.
The incorporation of Treasuries provides a form of risk management that bitcoin-only strategies often lack. Treasuries, being backed by the U.S. government, are widely regarded as one of the safest investments available.
By rotating into Treasuries during periods of market uncertainty, Bitwise aims to cushion investors from the full brunt of bitcoin market declines, while still positioning them to benefit from rallies when conditions improve.
Bloomberg’s James Seyffart explained that the product, listed under the ticker BITC, would alternate investments between bitcoin and the U.S. government’s primary short-term debt securities.
Seyffart noted, “We’re adapting to what our clients and potential clients are asking for, there’s a demand for Bitcoin investment options that mitigate downside risk, and Bitwise’s new strategy is aimed at addressing that.”
The mechanics behind this strategy are relatively simple yet powerful. The funds will use the 10-day and 20-day EMAs to determine whether to stay in bitcoin or switch to Treasuries.
When the shorter-term 10-day EMA crosses above the longer-term 20-day EMA, it signals upward momentum in bitcoin prices, prompting the funds to invest in Bitcoin futures.
However, if the 10-day EMA dips below the 20-day EMA, indicating a potential downturn, the strategy will rotate out of bitcoin and into Treasuries.
Bitwise hopes this trend-following strategy will not only help minimize losses during bear markets but also allow the funds to capture gains during bull markets. As Hougan put it, the aim is to help minimize downside volatility while achieving long-term price appreciation.
One of the most appealing aspects of this shift is that it requires no action from current investors.
According to Bitwise, the expense ratios and tax treatment of these ETFs will remain unchanged. This means that while the funds’ strategies will become more dynamic, investors won’t face any additional costs or complications.
This push into new areas of digital assets investment underscores Bitwise’s commitment to providing a wide range of investment options for those interested in the burgeoning digital asset market.
Bitwise’s decision to incorporate U.S. Treasuries into its digital assets futures ETFs marks a significant evolution in how bitcoin investments are managed.
By offering a more flexible strategy that adjusts to market conditions, the firm aims to attract investors who may have been wary of bitcoin’s notorious volatility.
At the same time, this move aligns with broader trends in asset management, where dynamic, trend-following strategies are increasingly favored for their ability to manage risk while seeking growth.
Bitwise has reached significant achievements this year, highlighted by the successful introduction of its spot Bitcoin ETFs, which has garnered more than $2.1 billion in net inflows so far, based on data from Farside Investors.
Since their launch in January, spot Bitcoin ETFs have performed exceptionally well. According to Glassnode, U.S. spot Bitcoin ETFs now account for nearly 5% of the total supply of bitcoin, which is capped at 21 million tokens.
As the December 3 deadline for these changes approaches, investors will be watching closely to see how Bitwise’s new approach performs.
If successful, it could pave the way for more innovative strategies in the bitcoin investment space, offering a balanced approach to what is often considered a high-risk, high-reward market.
