Summary Concentrated in crypto-related companies, Bitwise Crypto Industry Innovators ETF offers highly speculative exposure to Bitcoin without direct crypto investment. Despite high risks, BITQ's current discount to Bitcoin may present an opportunity for risk-tolerant investors if Bitcoin hits another significant milestone. An abundance of other crypto ETF options makes it hard to recommend the BITQ ETF except for a specific, risky trade idea. Bitwise Crypto Industry Innovators ETF (BITQ) has lost some of its shine since the crypto mania of 2020 and 2021. The crypto landscape is rapidly evolving, and instead of trading with a premium to the BTC price, now the BITQ ETF is trading with a noticeable discount. However, not all is lost for BITQ, in my opinion. A rising tide of the new crypto bull market lifts all boats, and the BITQ ETF is no exception here. If you have an appetite for a more speculative bet on crypto than Bitcoin itself, then the BITQ may be worth considering. Given that investing in the BITQ has become a rather niche way to get exposure to crypto, it's hard for me to recommend the ETF to a broader audience. Thus, I give the BITQ ETF a "Hold" rating. BITQ ETF Overview According to the fund's description, the BITQ ETF tracks the performance of the Bitwise Crypto Innovators 30 Index, which focuses on firms that have the majority of their revenue or net assets from crypto-related activities. It should be noted that the BITQ ETF avoids direct investment in Bitcoin or other cryptocurrencies. The BITQ ETF is concentrated in its top holdings, with nearly 70% of its portfolio represented by its top-10 holdings as of November 2024. Seeking Alpha Let's take a look at a few key players: 1. MicroStrategy Inc. (MSTR) (18.35% of overall holdings): MicroStrategy is the largest corporate Bitcoin holder globally, with over 279,400 BTC in its reserves. 2. Coinbase (COIN) (11.01%): Coinbase is one of the world's largest cryptocurrency exchanges. Its revenue is heavily dependent on trading activity, meaning its performance closely aligns with crypto market cycles. 3. MARA Holdings (MARA) (10.27%): Formerly known as Marathon Digital Holdings, the company is a leading Bitcoin miner with a focus on aggressive scaling of its mining operations. It should be noted that the BITQ ETF has a hefty expense ratio of 0.85%, which makes it not especially attractive for long-term investing. Personally, for long-term investing, I'd stick to liquid spot Bitcoin ETFs like the IBIT or direct purchases of BTC in the crypto market. Bitcoin Short-Term Outlook After the post-election explosive growth, Bitcoin may be on the verge of a correction in the short term. There's a strong observed correlation between Bitcoin prices and global M2 money supply. The current financial liquidity trend shows a certain tightening, which may cause Bitcoin to fall to the level of $88,000 or even lower. @JoeConsorti / Bloomberg Thus, investors should be cautious about adding any meaningful amount of crypto exposure to their portfolio at the current prices. A decline in Bitcoin may drag down BITQ's holdings, particularly companies like MARA Holdings and Riot Platforms (RIOT), which are highly tied to mining profitability. MicroStrategy: The Elephant in the Room MicroStrategy is by far the most controversial holding of the BITQ ETF. Over the course of its history, MicroStrategy has transformed itself into a proxy for Bitcoin, leveraging its balance sheet to purchase massive amounts of Bitcoin. While this strategy has paid off during Bitcoin rallies, it also exposes the company to enormous downside risks. As fellow Seeking Alpha analysts point out , MicroStrategy's stock currently trades at a massive 243% premium to its Bitcoin holdings, which is a major red flag for investors. Closing The Gap Despite the risks related to MicroStrategy, I still see an opportunity in BITQ for risk-tolerant investors. The thing is, the BITQ ETF still lags behind the BTC price compared to the dynamic we saw back in 2021 when BITQ traded with a considerable premium to Bitcoin. TradingView To be fair, the existing "discount" of the BITQ ETF to Bitcoin could occur due to the rise of spot Bitcoin ETFs, which took over a significant part of the crypto-related demand. Moreover, the halving event of 2024 affected Bitcoin miners' profitability, limiting the upside for BITQ in general. Nonetheless, I still think the current gap is too huge to be ignored, especially if we see Bitcoin hitting a milestone of $100k per coin. The whole crypto market has recently got a major boost in anticipation that the upcoming Trump administration will be as crypto-friendly as possible. The most important initiative in this regard is creating a Bitcoin strategic reserve , which could radically transform the whole crypto landscape. While some analysts point to regulatory and fiscal hurdles connected with this proposal, the key aspect here is to ride the momentum until crypto investors get more skeptical about the prospects of the BTC reserve and other plans of the pro-crypto Trump administration. Also, the official page of the BITQ ETF offers a convenient tool for tracking the premium/discount to NAV trend. bitqetf.com Despite that, the current discount to NAV is negligible, checking the NAV trend can be useful for active investors who'd like to calibrate their market timing of the position. Given that BITQ's share price regularly shifts from premium to discount to NAV and vice versa, tracking such movements may help to identify when it's better to buy or sell BITQ's shares. The Bottom Line The BITQ is an interesting ETF for investors who want exposure to the crypto ecosystem without directly holding crypto assets. If you believe that the fund's holdings can close the historical performance gap with Bitcoin, then holding BITQ could make sense. However, investors must also be aware of the extreme risks associated with this ETF. Holdings like MicroStrategy, with its rich valuation, may lead to much deeper draw downs compared to Bitcoin itself in case of a correction.
