Bitwise’s New Investment Product
On September 16, Bitwise took a significant step toward launching a new investment product by submitting a prospectus for a stablecoin and tokenization exchange-traded fund (ETF) compliant with the 1940 Investment Company Act, commonly referred to as the 40 Act. This move positions them for a potential release in time for Thanksgiving.
ETF Structure and Investment Strategy
The proposed ETF aims to track the Bitwise Stablecoin and Tokenization Index, focusing on displaying a balanced investment landscape through two distinct sectors. One sector will consist of investments in equities, dedicating up to 50% of its portfolio to a diverse selection of companies engaged in stablecoin operations, including issuers, infrastructure developers, payment facilitators, exchanges, and retailers with a focus on stablecoins.
To maintain effective diversification, the fund imposes tiered weight limits based on the extent of each company’s involvement in the stablecoin sphere. Tier 1 firms boasting significant operations are restricted to 15% of the fund’s allocation, while Tier 2 companies, which have notable but not dominant stablecoin interests, are limited to 8%. Companies in Tier 3, which have minimal engagement in this area, face even stricter constraints, capped at 3%. Overall, the ETF intends to allocate capital to 20 firms from the top two tiers, with the option to include up to 10 firms categorized as Tier 3 if needed.
Cryptocurrency Investments and Management
Additionally, the cryptocurrency portion of the fund will channel investments into products that deliver blockchain infrastructure exposure, requiring that these assets hold at least a 1% market share in either stablecoins or tokenization. For the technological edge, the fund also plans to reserve 5% of its capital for oracle tokens, which facilitate connections between blockchains and external systems, ensuring that the largest component is no more than 22.5% of the total index. The fund is designed to undergo rebalancing on a quarterly basis, with a strong inclination toward information technology investments.
Market Context and Regulatory Insights
Specific details regarding management fees remain undisclosed in the preliminary filing. As of mid-September, Bitwise manages a substantial $15 billion in crypto assets across 30 different investment products, including various ETFs focused on spot Bitcoin and Ethereum.
According to Bloomberg’s ETF analyst Eric Balchunas, the use of the 40 Act for this prospectus could expedite the regulatory approval process, potentially enabling the ETF to launch within a few months instead of the usual lengthy timeframe.
This approach aligns with recent filings from other companies like REX-Osprey, which are introducing similar products focused on cryptocurrencies, hinting at a growing institutional appetite for digital asset investments, especially in the realm of stablecoins that have recently surged to a supply of $287 billion.
Conclusion
With this initiative, Bitwise aims to tap into the burgeoning interest in tokenized assets, reflecting significant market trends towards digital currency adoption and investments.
