Not all Bitcoin ETFs are created equal. Just ask Cathie Wood of Ark Invest.
For investors looking for clues as to the future price trajectory of Bitcoin (BTC -1.13%), it’s worth keeping an eye on Cathie Wood of Ark Invest. While she’s well-known for her $1 million price forecasts for Bitcoin, she has also emerged as one of the biggest champions of ETFs as a way for individual investors to get exposure to Bitcoin.
That’s where things get interesting because not all Bitcoin ETFs are created equal. So which Bitcoin ETFs does Wood like, and which ones does she not like? To answer that question, we need to take a closer look at her recent moves.
What has Cathie Wood been buying and selling?
Heading into 2024, Ark Invest initiated a strategy of loading up on the ProShares Bitcoin Strategy ETF (BITO 4.52%). At the time, this was the most popular Bitcoin ETF and the best way to get exposure to Bitcoin without buying it directly in the crypto market. All of this was in anticipation of SEC approval of the new batch of Bitcoin ETFs in January, which Wood predicted would send the price of Bitcoin soaring.
After the new Bitcoin ETFs formally launched on Jan. 11, Ark Invest began to close out its positions in the ProShares Bitcoin Strategy ETF. At the same time, the firm began moving money into the new Ark 21Shares Bitcoin ETF (ARKB 4.65%). Wood made headlines with significant sales of the ProShares Bitcoin Strategy ETF in January and again in April, when her firm finally sold off the last of its shares.
The method to the madness
At first glance, this might seem like a lot of paper shuffling. Since the money eventually ended up in a Bitcoin ETF managed by Wood’s investment firm, one conclusion might be that this was the end goal of all these moves.
Image source: Getty Images.
But, as noted above, not all Bitcoin ETFs are created equal, and there’s a bigger story here. While the names of the ProShares Bitcoin Strategy ETF and the Ark 21Shares Bitcoin ETF are very similar, they are vastly different investment products. There’s one 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 by 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. That matters considerably since it means the new spot Bitcoin ETFs do a better job of tracking the price of Bitcoin, and they come with considerably lower expense ratios.
Thus, a better way to analyze Wood’s recent moves is that they are part of a broader strategy designed to get the best possible price exposure to Bitcoin while keeping fees and expenses to a minimum. Since her firm currently projects that Bitcoin could reach a price of $1 million before 2030, this makes a lot of sense. Her goal is to get exposure to Bitcoin as efficiently as possible.
Which Bitcoin ETF should you buy?
This does not imply, however, that you should go out and buy Wood’s spot Bitcoin ETF. The SEC approved 11 different spot Bitcoin ETFs back in January, so you have plenty of options.
Right now, in terms of assets under management, there are two other spot Bitcoin ETFs — the iShares Bitcoin Trust (IBIT 4.73%) and the Fidelity Wise Origin Bitcoin Fund (FBTC 4.72%) — that are performing 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.
There’s a lot that you can learn from Wood and Ark Invest, though. The big takeaway lesson here is that you should always know what you are buying, as well as how that purchase fits into your overall investment strategy. Before you buy a new Bitcoin ETF, you should know what type you are buying. If in doubt, you can use an online Bitcoin ETF tracker to see if it is a “spot” or “futures” ETF.
That being said, the one type of Bitcoin ETF that you should avoid right now is any futures-linked Bitcoin ETFs. Instead, you should consider following Wood’s lead and invest in one of the new spot Bitcoin ETFs. You’ll get better price exposure to Bitcoin, and you’ll save yourself a lot in fees and expenses.