While they lobby for a spot bitcoin ETF approval, issuers are increasingly using Bitcoin futures to combine crypto exposure with other asset classes. The Global X Blockchain and Bitcoin Strategy ETF (BITS) holds half of its assets in long-dated bitcoin futures contracts and the other half in blockchain-related equities, while VanEck has filed for an ETF that mixes bitcoin futures and gold investment vehicles.
WisdomTree was the first issuer to add bitcoin futures exposure to an ETF by adding a small allocation to the WisdomTree Enhanced Commodity Strategy Fund (GCC) before the pure-play bitcoin futures funds debuted, and last week it added a 1.82% weighting to the WisdomTree Managed Futures Strategy Fund (WTMF). ETF.com spoke with Jeremy Schwartz, WisdomTree’s global head of research, on why adding bitcoin exposure to other asset classes makes sense for certain strategies.
This interview has been edited for clarity and brevity.
ETF.com: Walk me through why you’re adding Bitcoin futures exposure to WTMF right now. What was the demand like from shareholders and advisors about adding just a dash of crypto into this fund?
Schwartz: When we thought about where crypto fits into portfolios more broadly, one of the questions is, what is crypto as an asset class.
When you're implementing allocations through futures, people have long implemented commodity-oriented strategies with futures. With how bitcoin is looked at by some of the regulators—bitcoin futures being regulated as a commodity—in some ways it made sense to look at active commodity funds, things like our enhanced commodity strategy GCC, as well as our managed futures ETF, which can go long or short different commodities, currencies and interest rates.
Because of the volatility in bitcoin futures, we’ve decided to just go long or flat and not actually go short there. We think the diversification angle compared to other commodities and currencies makes sense in that perspective.
ETF.com: Will this allocation be only a front-month exposure, or are you going across the curve with this allocation?
Schwartz: We do have ability to look across the curve. GCC in particular tends to look for the best roll opportunities over time in some of the different commodity futures it invests in. And we have the flexibility.
The question will be, does the futures curve develop a shape [such] that it warrants looking beyond where the liquid futures are? And the liquid futures tend to be in the earlier months of the contract.
It can, but today we're looking at where the liquidity profile is. There's not a shape of the futures curve that implies a better strategy from doing something different.
ETF.com: This isn’t the first ETF to do this strategy—you mentioned GCC and WTMF. Other issuers are combining bitcoin futures exposure with blockchain-related equities. VanEck is trying to issue a joint bitcoin futures and gold ETF. Other ETFs are applying this kind of partial exposure strategy.
Is this the way forward for the industry, where this is the only way to create differentiation right now when the ProShares Bitcoin Strategy ETF (BITO) is dominating pure front-month bitcoin exposure and the SEC isn’t allowing spot, leverage or other types of cryptocurrencies in ETFs?
Schwartz: For the appropriate funds, which I mentioned are funds that include commodities futures in particular, we believe that what we consider a low allocation, 3-5%—right now we have 1.5% in the managed futures strategy—is a very thoughtful, measured way of doing it.
For the 100% position, we prefer a spot bitcoin ETF; we've said that on the record. But for an allocation of a broader commodity strategy, we think that 3-5% levels make a lot of sense for different commodity strategies.
We’ve said when we added the 3% to GCC that we were funding that position from gold. If there are funds that allocate to gold—bitcoin is often compared to the new generation's gold or the digital gold of the future—you've got to ask, why are we adding these crypto assets? What’s the real portfolio motivation?
That’s why managed futures and commodities are where we think it makes the most sense. It’s not like you're just adding it randomly to an equity fund here. It's using context of the diversification for traditional commodities, and gold in particular is where we think the best allocations are.
ETF.com: Can you update us on where your firm is in refiling the application for a spot bitcoin trust? I understand that in the new filing, WisdomTree has added more consumer protections; for example, complying with the Sarbanes-Oxley Act. Where do you see that shaping up?
Schwartz: It’s hard to predict the regulatory responses. We do have [spot bitcoin ETF] products in Europe. We've done institutional-level due diligence on the custodian. We prefer a spot bitcoin ETF, and we're trying our best to work with the regulators in the U.S. to get them comfortable with our framework.