Bitwise launches two new funds to capitalize on dip in cryptocurrency market

Funds are built for professional investors sick of waiting for SEC to approve a bitcoin ETF

Dec 5, 2018 @ 3:49 pm

By Ryan W. Neal

The downturn in U.S. stocks is nothing compared to the sell-off cryptocurrency traders are experiencing. Bitcoin plunged 5.2% Tuesday to $3,700, the lowest it's been since November 2017, according to MarketWatch. Ether, one of bitcoin's largest competitors, dropped even further.

At least one crypto-entrepreneur sees the dip as the perfect time to introduce new investment products for professional investors to get into the market. Bitwise Asset Management, a startup that recently earned the backing of Ric Edelman, announced Wednesday the launch of low-cost, liquid beta funds exclusively holding bitcoin and ether.

The funds, Bitwise Bitcoin Fund and Bitwise Ethereum Fund, are only available to U.S.-accredited investors. The Securities and Exchange Commission has not yet approved the trading of cryptocurrency index funds for retail investors.

The funds are available in two share classes. Institutional shares have an all-in expense ratio of 1% and a minimum investment of $1 million. Investor shares carry a 1.5% expense ratio and a $25,000 minimum.

Matt Hougan, Bitwise CEO and global head of research, said demand for these products is driven by clients — financial advisers and institutional investors — who are sick of waiting for the SEC to approve a bitcoin ETF, but want an investment vehicle more in line with what they are used to.

(More: Bitcoin ETFs stymied by lack of safeguards, says SEC chief Jay Clayton)

Many existing options carry premiums, charge exit fees, have lockups and charge expenses outside of the management fee, he said.

"[Our funds] are more similar to a traditional mutual fund," Mr. Hougan told InvestmentNews. "There's a class in institutional investors and accredited investors who want access to [cryptocurrencies] and are frustrated waiting for it to be approved. This is a way they are comfortable with."

Though the bitcoin market has tumbled an estimated 68%, Mr. Hougan is confident a number of developments, including the launch of Fidelity Digital Asset Services, indicate a rebound is on the horizon.

"We have seen significant inbound demand for high-quality bitcoin and ether funds," Mr. Hougan said in a statement. "Our clients have been adding to their positions throughout the downturn, and many who've been following the space for a while are using this opportunity to finally come in."

There is also widespread frustration in the performance of many of the more popular alternative asset classes like hedge funds, private equity and venture capital, Mr. Hougan said. With equity markets sliding, investors are looking for other options and "turning to things like crypto as an alternative to the alternatives they've soured on."

"We have a number of financial advisers who are clients and a number of financial advisers who direct clients to us," Mr. Hougan added. "We do a huge amount of education with advisers so they can answer the questions that clients have."

Matthew Ricks, a financial adviser with Ameriprise Financial, said his younger clients have remained interested in cryptocurrencies despite the latest downturns. Some are looking to buy more in anticipation of a rebound, while others are taking a long-term bet on the technology's future benefits. But most haven't yet bought in.

(More:Sell-off in cryptocurrencies reaches new low)

"They kept looking for an opening and figured the massive decline might be the time," Mr. Ricks said.

The complexity of investing in crypto excluded some of his clients, and products like Bitwise's funds could be attractive to them.

"That being said, I doubt this product would become available at most of the wirehouses and broker-dealers any time soon," he said.

The funds are the second and third products from Bitwise, joining the Bitwise 10 Private Index Fund, which invests across the 10 most popular cryptocurrencies.

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