BTCO ETF: A Useful Tool For Pragmatic And Active Investors

The first time I ever heard about Bitcoin was more than a decade ago, in 2013. Sure enough, I missed all the growth in crypto since then due to my consistently negative bias towards crypto in general.

However, my view of crypto assets has evolved throughout the years. In this article, I’d like to present a pragmatic view on Bitcoin and Bitcoin ETF, as well as outline a possible use case for active investors.

In my opinion, Invesco Galaxy Bitcoin ETF (BATS:BTCO) is a great way to benefit from the hype around Bitcoin without the need to access crypto exchanges.

BTCO ETF Overview

According to the fund’s description, Invesco Galaxy Bitcoin ETF is an exchange-traded fund that is used to reflect the performance of the spot price of Bitcoin as measured using the Lukka Prime Reference Rate, less the fund’s expenses and other liabilities.

The BTCO ETF is one of the newly incepted Bitcoin spot ETFs, so let’s compare it with peer funds. Due to harsh competition, fund providers, including Invesco, cut fees and introduced temporary fee waivers. Even more, on January 30, 2024, Invesco cut the fee for the BTCO ETF from 0.39% to 0.25% after the waiver.

Invesco also says that during 6 months commencing on January 11, 2024, it intends to waive the entire Sponsor Fee on the first $5 billion of fund assets.

Considering that the fees will stay flat at 0% in the next 6 months for the majority of Bitcoin spot ETFs, one of the key criteria for picking a particular ETF is assets under management, or AUM.

BTCO looks solid with over $247 mn of AUM, though it’s significantly lower than the $2.10 bn AUM of iShares Bitcoin Trust ETF (IBIT). However, that’s not a deal-breaker as long as the volume of your trades is not measured in tens of millions of dollars.

Bitcoin: The Pragmatic View

Bitcoin and cryptocurrencies in general have always been a divisive topic among investors. Here’s my take on crypto:

1. I don’t see intrinsic value in crypto, though the extrinsic value of crypto definitely exists. In my view, extrinsic value of crypto is a result of excess financial liquidity, market sentiment, vast crypto infrastructure, and narratives dominating the crypto space. It’s debatable how sustainable crypto will be in the longer term, but for now, the existing status quo is that crypto isn’t going anywhere and is slowly being adopted among users and investors.
2. Bitcoin is extremely volatile. That’s beneficial for traders and active investors. With proper risk management, wise sizing of positions, and consistent execution, I see plenty of opportunities to exploit in the crypto space.
3. In my view, crypto is an asset bubble, but this bubble is different. Most of the bubbles human history knows existed before central banks explored quantitative easing, or QE.

I find excess financial liquidity an extremely important factor to consider in the context of crypto. After many years of stimulating the US economy through “printing money” within the QE, the Federal Reserve’s balance sheet is still bloated with assets. Two rounds of so-called quantitative tightening have shown modest results so far.

It’s a big question whether the Fed and other central banks ever return to pre-QE or at least pre-pandemic balance sheets, fully eliminating excess liquidity. In this regard, crypto will have plenty of room to operate thanks to a huge mass of money floating in the global financial system.

BTCO ETF Use Case

Let me describe one of the simplest ways to benefit from Bitcoin spot ETFs like BTCO. First of all, an investor should keep in mind that Bitcoin’s performance is usually well correlated with the US stock market.

Market sentiment in crypto and in the US stock market differs in the short term. This difference in sentiment can be used for something I’d call “sentiment arbitrage”: if sentiment in stocks is noticeably more positive compared to crypto, then there’s a certain probability crypto will catch up at some point.

This is exactly what’s happening in the last couple of weeks. Once the hype around launching BTC-ETFs dissipated, Bitcoin faced a major sell-off.

Nonetheless, today’s US stock market is overwhelmed with extremely positive sentiment. In such an environment, crypto is catching up, providing an opportunity for investors through BTC-ETFs like BTCO.

Two basic indicators investors can use as sentiment gauges:

• Crypto Fear & Greed Index
• S&P 500 Fear & Greed Index

If we compare these two indicators now, we can notice that the stock market sentiment is significantly more positive compared to the sentiment in Bitcoin.

To limit your risk during such speculative trades, I strongly recommend using stop-loss orders below let’s say 5-10% of the purchase price.

Risks To Consider

• Volatility: As I’ve already mentioned before, Bitcoin has historically exhibited high price volatility compared to traditional asset classes.
• Regulation: Regulatory changes or actions may alter the nature of an investment in Bitcoin or restrict the use of Bitcoin. It may become difficult or illegal to acquire, hold, sell, or use Bitcoin in certain countries, which could impact the price of Bitcoin and, consequently, the price of Invesco Galaxy Bitcoin ETF shares.
• Performance Deviation: The BTC-ETFs returns may not match the performance of Bitcoin 100% accurately due to a tracking error, which is inevitable in the case of ETFs like Invesco Galaxy Bitcoin ETF.

The Bottom Line

Trading sentiment and momentum is usually extremely difficult, but not impossible. Nevertheless, I outlined a simple framework that can be used by a wide variety of risk-tolerant investors without the need to dive deep into crypto or technical analysis.

As for Invesco Galaxy Bitcoin ETF, there are currently not many differentiating factors among BTC-ETFs except expenses and AUM, thus investors can stick to a Bitcoin spot ETF of personal preference.