Bitcoin
The 1 Type of Bitcoin ETF You Should Avoid, According to Cathie Wood of Ark Invest
For investors looking for clues about the future trajectory of stock prices Bitcoin (CRYPTO: BTC), worth keeping an eye on Cathie Wood of Ark Invest. While she is known for her $1 million price predictions for Bitcoin, she has also emerged as one of the biggest advocates of ETFs as a way for individual investors to gain exposure to Bitcoin.
This is where things get interesting because Not all Bitcoin ETFs are created equal. So which ETFs does Bitcoin Wood like and which does she not? To answer this question, we need to take a closer look at its recent movements.
What has Cathie Wood been buying and selling?
Heading into 2024, Ark Invest has initiated a loading strategy on ProShares Bitcoin Strategy ETF (NYSEMKT: BITO). At the time, this was the most popular Bitcoin ETF and the best way to get exposure to Bitcoin without buying it directly from the crypto market. All of this was in anticipation of the SEC’s approval of the new batch of Bitcoin ETFs in January, which Wood predicted would send Bitcoin’s price soaring.
Following the formal launch of the new Bitcoin ETFs on January 11, Ark Invest began closing its positions in the ProShares Bitcoin Strategy ETF. At the same time, the company began transferring money to the new Ark 21Shares Bitcoin ETF (NYSEMKT: ARKB). Wood made headlines with significant sales of the ProShares Bitcoin Strategy ETF in January and again in April, when his company finally sold its last shares.
The method to madness
At first glance, this may seem like a lot of mixed work. Since the money ended up in a Bitcoin ETF managed by Wood’s investment company, one conclusion could be that this was the ultimate goal of all these moves.
Image source: Getty Images.
But as noted above, not all Bitcoin ETFs are created equal, and there is a bigger story here. Although the names of the ProShares Bitcoin Strategy ETF and the Ark 21Shares Bitcoin ETF are very similar, they are very different investment products. There is a simple reason: the ProShares product is a futures-linked Bitcoin ETF, while the Ark Invest product is a spot Bitcoin ETF.
Put another way, the ProShares Bitcoin Strategy ETF tracks the price of Bitcoin using financial derivatives such as Bitcoin futures contracts, while the Ark 21Shares Bitcoin ETF tracks the price of Bitcoin directly in the “spot” crypto market. This is very important as it means that the new spot Bitcoin ETFs do a better job of tracking the price of Bitcoin and come with considerably lower expense ratios.
So the best way to look at Wood’s recent moves is that they are part of a broader strategy designed to gain the best possible exposure to the price of Bitcoin while keeping fees and expenses to a minimum. Since his company currently projects that Bitcoin could reach a price of $1 million before 2030, this makes a lot of sense. Your goal is to gain exposure to Bitcoin in the most efficient way possible.
The story continues
Which Bitcoin ETF should you buy?
This does not mean, however, that you should go out and buy Wood’s spot Bitcoin ETF. The SEC approved 11 different spot Bitcoin ETFs in January, so you have plenty of options.
At the moment, in terms of assets under management, there are two other Bitcoin ETFs in sight – the iShares Bitcoin Trust (NASDAQ: IBIT) and the Fidelity Wise Origin Bitcoin Fund (NYSEMKT: FBTC) – which perform better than Ark Invest’s Bitcoin ETF. For example, the iShares Bitcoin Trust has over $17 billion in assets under management, compared to just $3 billion for the Ark 21Shares Bitcoin ETF.
However, there is a lot you can learn from Wood and Ark Invest. The big lesson here is that you should always know what you are buying and also how that purchase fits into your overall investment strategy. Before purchasing a new Bitcoin ETF, you should know what type you are purchasing. If in doubt, you can use an online Bitcoin ETF tracker to see if it is a “spot” or “future” ETF.
That being said, the only type of Bitcoin ETF you should avoid right now is any futures-linked Bitcoin ETFs. Instead, you should consider following Wood’s example and investing in one of the new spot Bitcoin ETFs. You will have better exposure to the price of Bitcoin and save a lot on fees and expenses.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The motley fool has a disclosure policy.
The 1 Type of Bitcoin ETF You Should Avoid, According to Cathie Wood of Ark Invest was originally published by The Motley Fool