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The Newest Bitcoin ETF is a Managed “Fund of Funds” Strategy

The U.S. market to date still has no formal Bitcoin ETF which directly buys Bitcoin for its holders. We have Bitcoin owners and miners which are publicly traded, we have crypto strategies, digital asset strategies and we have the key Bitcoin futures products that trade as ETFs. But still no formal ETF that owns Bitcoin. AdvisorShares has announced the launch of the AdvisorShares Managed Bitcoin Strategy ETF (NYSE Arca: CRYP). It is representing itself as a “fund of funds” and it will be actively managed.

According to the AdvisorShares press release, the ETF is sub-advised by Morgan Creek Capital Management CEO & CIO Mark Yusko as portfolio manager of this ETF. The ETF will invest in U.S. bitcoin-related ETFs and may invest in U.S. exchange-traded bitcoin futures contracts, and the fund will also seek to actively manage risk based on expectations for the value of bitcoin.

The long and short of the matter is that the fund’s manager has the ability to range the total portfolio’s bitcoin exposure as low as zero and all the way up to 100% of the assets. It’s press release further clarifies this goal and strategy:

For example, CRYP can be fully invested when the manager’s indicators suggest a future rise in bitcoin’s price. Conversely, its bitcoin futures exposure can be reduced, and moved to short duration fixed income instruments, when the manager’s indicators suggest a future decline in price.

In a lot of ways this sounds like a Bitcoin hedge fund. Then again, it doesn’t have the 2%/20% split (nor a 1%/10% split). By investing in other ETFs, and adding bitcoin futures as it gains assets (and investment opportunities arise) the press release describes it more as a “fund of funds” strategy rather than a true direct Bitcoin strategy or hedge fund strategy:

To the extent the Fund invests a significant portion of its assets in Bitcoin ETFs, it will be operating as a “fund of funds.” The Fund will not invest directly in bitcoin.

Here are the fund’s management fees listed on the AdvisorShares site:

  • Management Fee 0.90%
  • Other Expenses 0.06%
  • Acquired Fund Fees and Expenses 0.65%
  • Total Annual Operating Expenses 1.61%

Below is a note on its strategy from the summary prospectus:

The Fund will invest indirectly in Bitcoin Futures via Bitcoin ETFs and, when the opportunity arises, through a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the “Subsidiary”). The Fund also may invest a small percentage of its assets directly in Bitcoin Futures. Bitcoin Futures are standardized, cash-settled futures contracts on bitcoin. In a cash-settled futures contract on bitcoin, the amount of cash to be paid is equal to the difference between the value of the bitcoin underlying the futures contract at the close of the last trading day of the contract and the futures contract price specified in the agreement. Such futures contracts are traded on commodity exchanges registered with the U.S. Commodity Futures Trading Commission (the “CFTC”). Currently, the only such contracts are traded on, or subject to the rules of, the Chicago Mercantile Exchange (the “CME”). The value of Bitcoin Futures is determined by reference to the CME CF Bitcoin Reference Rate (“BRR”), which provides an indication of the price of bitcoin across certain cash bitcoin exchanges.

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