ETF Talk: A ‘Wise’ Investment in Cryptocurrency

ETF Talk: A ‘Wise’ Investment in Cryptocurrency

Nothing seems to have divided the investment community more than Bitcoin.

It really is, to use the title of the Charles Dickens’s novel, “A Tale of Two Cities.” Some individuals, like myself, view Bitcoin (and cryptocurrencies more generally) as a tool that can help break the destructive monopoly that central banks have over each nation’s currency and place that power back in the hands of individuals.

Others, including prominent investor Warren Buffett, who recently stated that he “wouldn’t pay $25 for all the Bitcoin in the world,” and financial guru Dave Ramsey, are much less sanguine. They have even predicted that the Bitcoin bubble will soon burst in a dramatic and destructive way.

While a debate at this year’s FreedomFest (and if you haven’t signed up at www.freedomfest.com yet, why haven’t you?) will attempt to answer the question of if Bitcoin, and cryptocurrencies more generally, are a “wise” investment, there is a new exchange-traded fund devoted to Bitcoin that has “wise” in its name that I would like to discuss: Fidelity Wise Origin Bitcoin Fund (BATS: FBTC).

First of all, it is important to note that FBTC is devoted to tracking the daily spot price of Bitcoin in dollars. It does not invest directly in Bitcoin (or in any other cryptocurrency, for that matter). So, investors who are interested in cryptocurrencies but who have been scared away by the demands of acquiring, holding and trading them might have their interest piqued by FBTC.

The fund’s managers have set up FBTC to track the price of Bitcoin and value its holdings each day based on the Fidelity Bitcoin Reference Rate. To acquire this data, the fund’s managers draw on data from eligible Bitcoin spot markets and a volume-weighted median price methodology that merges the trade flow of several Bitcoin platforms during a specific period of time.

As of March 19, FBTC has been up 45.18% over the past month.

Chart courtesy of www.stockcharts.com

In short, while FBTC does provide an investor with a way to partake in the Bitcoin craze, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.