Summary New cryptocurrency ETFs have been successful this year, but there is still a gap for diversified crypto mix ETFs. Bitwise 10 Crypto Index Fund ETF tracks the 10 most highly valued cryptocurrencies but is heavily weighted towards Bitcoin and Ethereum. Despite a discount to NAV, high expenses and a lack of actual diversification make the BITW fund less competitive in the crypto ETF space. This year has been fruitful in terms of new cryptocurrency ETFs. However, there's still a niche that remains free: exchange-traded funds representing a diversified mix of cryptocurrencies. Bitwise 10 Crypto Index Fund ETF (BITW), incepted way back in 2017, is an attempt to address the lack of such funds. I like the concept of the fund, though there are serious caveats that may affect an investor's decision to buy the fund's shares. If you're comfortable with the fund's features, risks, and limitations, then it's a decent investment vehicle to own with strong YTD performance. I give the BITW fund a "Hold" rating. BITW Fund Overview According to the fund's description , the BITW fund seeks to track an index comprised of the 10 most highly valued cryptocurrencies, screened and monitored for certain risks, weighted by market capitalization, and rebalanced monthly. Such a concept sounds awesome, but if we look at the fund's holdings , the first caveat becomes obvious: unbalanced sizing of the fund's crypto positions. Bitwise As you can see from the picture above, 91% (!) of the fund consists of Bitcoin and Ethereum. The rest eight cryptocurrencies share a negligible 9% of the fund's holdings. Given the overwhelmingly dominant weight of the fund's performance with Bitcoin and Ethereum, these are the only cryptocurrencies that are worth discussing in the context of the BITW fund. With the existing crypto ETFs, you can easily replicate 91% of the BITW fund by buying iShares Bitcoin Trust ETF ( IBIT ) and Bitwise Ethereum ETF ( ETHW ), which give you liquid exposure to Bitcoin and Ethereum accordingly. With a presumably upcoming Solana ETF, you'll be able to replicate 95.36% of the BITW holdings. And here comes the next red flag: expenses. In 2017, when the fund was incepted, crypto was still an oddity for tech geeks, and an expense ratio of 2.5% looked justified for an alternative asset. It's no secret that new BTC-ETFs and ETH-ETFs have fees around 0-0.25%, making the BITW look completely uncompetitive. Nonetheless, there's something else we need to take into consideration: the NAV discount. Value To Grab Or A Value Trap? There's a specific feature of the BITW fund that attracts investors: a huge discount of the fund's share price to the value of assets it is currently holding. The fund states that the fund's net asset value (NAV) stands at $51.87, while the share price of the BITW is $35.96. Simply put, BITW's share price is roughly 30% lower than the net value of its assets. In my opinion, lower liquidity, high expense ratio, and fading exclusivity of the fund amid new crypto ETF issuances in one way or another may contribute to the NAV discount we observe today. Another reason for a discount may be the fact that the BITW fund doesn't have a proper listing on a stock exchange, trading solely in the OTC market. So far, the BITW fund performs slightly better than the most popular BTC ETF, IBIT. TradingView However, I don't see catalysts that could drive the BITW much closer to its actual NAV. Thus, in my view, it's a bold assumption to expect that the NAV discount can close anytime soon, if ever. To conclude, holding the BITW shares gives mostly the same performance as a mix of BTC and ETH ETFs, and you pay a higher expense ratio for a chance that at some point in the future, the NAV discount will be eliminated. The Bottom Line While the BITW looks like an obvious buy considering the fund's valuation discount to its NAV, I'd argue that this discount is not entirely unfounded. Again, crypto is all about hype, and "legacy" funds like the BITW that fail to offer cheap, liquid, and convenient exposure to crypto may ultimately lag behind. With an equal-weight approach to structuring the fund's holdings, the BITW fund could offer a unique proposition of a truly diversified way to get into crypto. Sadly enough, this is not what the BITW represents at the moment.
