Summary BITW's 323.9% 12-month return is driven primarily by a narrowing discount to NAV, and is unlikely to repeat as the discount is now only 12%. The fund's market cap weighting means bitcoin and ethereum dominate, offering little diversification and making it unattractive for those seeking exposure to other coins. BITW's 2.5% expense ratio and listing on the OTCQX® Best Market are red flags. The ongoing effort to convert BITW to an ETP structure could narrow the discount further, but without a significant discount, the fund lacks appeal. Interest in crypto hit a fever pitch over the weekend with the launch of $TRUMP and $MELANIA meme-coins. Bitcoin ( IBIT ) reached a new all-time high and the outlook for the space in 2025 looks exciting. Against this backdrop, the Bitwise 10 Crypto Index Fund ETF ( BITW ) looks attractive. It holds 10 of the top crypto coins, is run by a team of crypto "experts," and its 12-month returns were an eye-popping 323.9%. However, as this article explains, there are too many red flags and these returns are unlikely to repeat. This is a fund to avoid despite some appealing features. A Closer Look at BITW BITW was launched in November 2017, making it one of the oldest crypto funds. You may wonder how a crypto ETF could launch nearly seven years ahead of other ETFs, which only got SEC approval in 2024. It was also a month ahead of the launch of Bitcoin futures, which gave rise to ETFs such as the ProShares Bitcoin ETF ( BITO ). The answer is that it was privately traded until 2020, and strictly speaking, it is not even an ETF. The Bitwise 10 Crypto Index Fund is neither an ETF nor a Closed-End Fund (“CEF”), two fund structures with which many investors are familiar. To date, U.S. regulators have only approved bitcoin futures ETFs and have not yet approved any other crypto ETFs or CEFs, although Bitwise and other asset managers continue to pursue such approval. The Fund is also not a “Mutual Fund.” Mutual Funds are SEC-registered open-end investment companies that pool money from many investors, calculate an NAV daily, and are registered under the Investment Company Act of 1940. Nor is the fund a Unit Investment Trust (UIT). UITs make a one-time public offering of redeemable securities. Rather, the Fund is a Delaware Statutory Trust whose publicly traded class of shares is registered with the SEC, a more esoteric structure. This passage is outdated (it was published on the Biwise site in 2021) as it discusses the lack of approval for ETFs. However, the most up-to-date 10Q from September 2024 still lists BITW as a "Delaware Statutory Trust." One of the interesting aspects of BITW's status is that it cannot create and redeem shares (at least not quickly and easily) like an ETF can. That leads to premiums and discounts on the fund's NAV. Consequently, BITW trades at a consistent discount to its NAV, as shown by the chart below (NAV is blue, market price is green). Bitwise Market prices are only shown from 2020 onwards because BITW only started trading publicly in 2020 on the OTCQX® Best Market. At the beginning of 2024, the discount was an amazing 133%. It still trades on this exchange, which may be one reason for the consistent discount. At the beginning of 2024, the discount was an amazing 133%. However, this discount has narrowed considerably in the last six months, from around 40% to now only 12%. This is due to the application in November to change the fund's status from a Delaware Statutory Trust to an Exchange Traded Product. The filing is the latest step in Bitwise’s ongoing effort to convert the $1.3 billion publicly traded trust to an ETP structure. Shares of BITW are currently quoted on the OTCQX Best Market... The ETP structure confers many benefits to shareholders, including greater efficiency and regulatory protections. Notably, an ETP accepts subscriptions and redemptions on an ongoing basis at Net Asset Value (NAV), creating an arbitrage mechanism that allows the fund to trade on the secondary market in a way that is more closely linked to its NAV. If successful, BITW should trade very close to its NAV, just like an ETF would. Given the changes in government and crypto-friendly backdrop, the odds of success seem quite high, which means the discount could still narrow to around 12%. Fund Holdings and Returns BITW holds 10 coins in its portfolio and its holdings are kept in custody with Coinbase Custody Trust Company, LLC, which is the same custodian most crypto ETFs use. Holding 10 coins provides diversified exposure to the crypto space: Bitwise Bitcoin is by far the largest holding, with ethereum second. This is just a standard market cap weighting system, so is not likely to change much unless other coins significantly increase market caps in proportion to bitcoin. For those who already hold bitcoin or ethereum and want to diversify into other coins, the weighting system makes the fund unattractive. For those who want to increase holdings in bitcoin and ethereum, there are easier and cheaper ways to do it. As the BITW page states: Shares are subject to a 2.5% annual fee that includes the management fee, custody charges for holding the fund’s assets charged by the custodian, and customary fees and expenses of the fund administrator and auditor. For comparison, the iShares Bitcoin Trust ETF (IBIT) and the iShares Ethereum Trust ETF ( ETHA ) both have expense ratios of just 0.12%, and you don't have to mess around with OTC shares. The returns for BITW listed on the fund page tell an interesting story. Long-term, the fund has considerably underperformed bitcoin. However, the 12-month gains in price have been spectacular. Bitwise This is almost entirely due to the narrowing of the discount. At the January 2024 low, BITW's NAV was $35 while its price was $15. Such a low starting point meant the 12-month gain was 323.9% while NAV only gained 116.2%. Now that the discount is only 12%, this kind of outperformance is unlikely to repeat and if BITW does acquire ETP status, it will likely disappear as BITW should track its NAV. Risks BITW has several risky elements. Crypto is volatile, and the smaller coins BITW holds can make significant daily moves. BITW trades in the OTCQX® Best Market, which has lower liquidity. Conclusions BITW is an interesting fund that delivered a whopping 323.9% 12-month return as its discount to NAV narrowed in expectation of its status changing to an ETP. That is very likely to repeat, as the discount is now only 12%. Without the attraction of a significant discount, there is not much to like about this fund. The market cap weighting means bitcoin and ethereum dominate, so there is very little diversification in the other 8 coins. Furthermore, its 2.5% expense ratio and listing on the OTCQX® Best Market are red flags.
