The Bitwise BITQ ETF: Growth Equity Exposure to Crypto

The Bitwise Crypto Industry Innovators ETF (BITQ) is a novel investment vehicle offering exposure to the burgeoning world of cryptocurrency.

2024 etf.com Awards ETF of the Year nominee BITQ was among the top-performing ETFs of 2023 with an eye-popping 247% price gain, beating the price appreciation for BTC itself as well as bitcoin futures ETFs like the ProShares Bitcoin Strategy ETF (BITO).

Unlike directly investing in bitcoin or other digital currencies, BITQ provides a regulated and exchange-traded way to gain a stake in companies that develop, trade, and support the cryptocurrency ecosystem.

In simpler terms, BITQ “is a way of owning the picks and shovels behind crypto instead of just owning the crypto assets themselves,” Bitwise Chief Investment Officer Matt Hougan explains.

What Is the BITQ ETF?

BITQ, the Bitwise Crypto Industry Innovators ETF, is a passively managed exchange-traded fund that tracks a cap-weighted index of 30 crypto companies from around the world, including emerging markets. Harkening to the Gold Rush days of the 1840s, BITQ offers a pick-and-shovel approach to crypto, as it invests in stocks of cryptocurrency-related companies, rather than directly holding digital assets.  

BITQ’s holdings include bitcoin miners, mining equipment manufacturers, brokerages like Coinbase Global Inc., (COIN) and companies like MicroStrategy Inc (MSTR) that strategically invest in bitcoin as a primary part of their business.

Bitwise’s Hougan adds that “the companies within BITQ have some of the fastest growing revenues of any industry in the equity ecosystem and so it works in that space with other high growth plays.”

How Can BITQ Fit Within a Portfolio?

BITQ can fill the same space as a high growth technology fund in an investor’s portfolio or it may also fit as an alternative asset because, as Hougan says, “being a crypto focused play, it has low correlations to traditional stocks and bonds. So high growth tech or non-correlated alternative, those are the two places we see financial advisors using BITQ today.”

Bottom Line on Investing in BITQ

Investors might choose an equity based crypto ETF like BITQ over a fund that directly invests in cryptocurrency like bitcoin for a variety of reasons, including diversification, ease of access, and growth potential. That said, like other ETFs, BITQ has risks that investors need to know about before buying shares.

• Diversification: Holding a basket of stocks from companies involved in the crypto industry provides diversification and reduces risk compared to putting all your eggs in the bitcoin basket. A price swing in bitcoin wouldn't necessarily have the same impact on the overall value of the ETF.
• Ease of access: Buying and selling cryptocurrency often requires setting up accounts with specific crypto exchanges, which can involve complex procedures and security risks. ETFs like BITQ can be bought and sold through traditional brokerage accounts you might already use for stocks, offering a familiar and convenient way to gain exposure to crypto.
• Growth potential: Investing in companies at the forefront of the cryptocurrency revolution could offer significant growth potential. BITQ allows investors to tap into this growth without the complexities of directly owning and managing cryptocurrency.

Investors should also pay attention to the potential drawbacks of investing in BITQ.  

For example, with BITQ, you're not directly invested in cryptocurrency like bitcoin itself, but rather the companies that support it. This means you might not experience the same level of price appreciation (or depreciation) as you would by owning Bitcoin directly.

BITQ, like other ETFs, comes with management fees that eat into your returns. These fees can be higher compared to directly buying and holding cryptocurrency.

Furthermore, equity-based crypto ETFs are a relatively new investment vehicle, and their long-term performance remains to be seen. This can be a concern for investors seeking established investment options.

Ultimately, the decision between an equity-based crypto ETF like BITQ and a direct cryptocurrency investment depends on an investor’s individual risk tolerance, investment goals, and comfort level with the complexities of the cryptocurrency market. Some investors may want a mix of both.

As Hougan explains, “for many investors, they feel more comfortable investing in equities, and BITQ offers that. It gives you crypto exposure, but in an equity sleeve. So, if you want comprehensive crypto exposure, many investors find they both want crypto assets through something like a bitcoin ETF, as well as crypto company exposure through something like BITQ.”