If You Invested in Bitwise 10 Crypto Index ETF (BITW)

Bitwise 10 Crypto Index ETF (BITW) is an exchange-traded product that seeks to offer diversified exposure to the crypto asset market by tracking the Bitwise 10 Large Cap Crypto Index. According to Bitwise Asset Management, the index captures the 10 largest eligible crypto assets by free-float-adjusted market capitalization, with active screening and monthly rebalancing. The fund is sponsored by Bitwise Investment Advisers, LLC and is designed as a way for investors to gain indirect exposure to a basket of major crypto assets through a single NYSE Arca–traded vehicle.

The product was originally launched in 2017 as the first crypto index fund and has been described by Bitwise as the world’s largest and longest-running crypto index fund. In SEC filings, the trust reports that it completed a conversion to an exchange-traded fund structure and that its shares were approved for listing and trading on NYSE Arca under the symbol BITW. Following this conversion, the sponsor caused the trust to withdraw its shares from quotation on OTCQX, so primary trading is now intended to occur on NYSE Arca.

Investment objective and index approach

The Bitwise 10 Crypto Index ETF seeks to track the performance of the Bitwise 10 Large Cap Crypto Index. Bitwise states that this index includes the 10 largest eligible crypto assets by market capitalization, subject to screening rules that consider factors such as liquidity, custody, security, regulatory status, and network distributions. The index is rebalanced monthly under a defined methodology overseen by a Bitwise index committee and informed by an index advisory board.

At the time of a noted uplisting event, Bitwise reported that the fund held a basket of 10 crypto assets that included Bitcoin (BTC), Ether (ETH), XRP (XRP), Solana (SOL), Cardano (ADA), Chainlink (LINK), Litecoin (LTC), Avalanche (AVAX), Sui (SUI), and Polkadot (DOT), with weights based on market capitalization. Bitwise emphasizes that the fund’s holdings are subject to change over time as the index is reconstituted and rebalanced according to its rules.

Structure and key characteristics

In its prospectus-related disclosures, Bitwise explains that the Bitwise 10 Crypto Index ETF is not an investment company registered under the Investment Company Act of 1940 and therefore is not subject to the same regulatory framework as mutual funds or ETFs registered under that act. The fund is described as a nondiversified product that may hold a relatively small number of portfolio securities compared with many other investment vehicles.

Bitwise notes that an investment in BITW is not a direct investment in any crypto asset. Instead, the value of the shares is correlated with the value of the crypto assets held by the fund. The sponsor also discloses that the amount of crypto represented by each share will decline over time because the fund transfers crypto to pay the sponsor’s management fee and any litigation or extraordinary expenses.

Conversion to an exchange-traded product

According to Form 8-K filings, the trust that issues BITW shares amended its governing documents in connection with a conversion to an exchange-traded fund structure. The filings describe a First Amended and Restated Trust Agreement that, among other changes, reflects the name change from “Bitwise 10 Crypto Index Fund” to “Bitwise 10 Crypto Index ETF” and provides the trust with the ability to create and redeem shares with authorized participants in baskets of crypto assets or cash.

The filings further state that, upon completion of the conversion, BITW shares were approved for listing on NYSE Arca and that regular trading on the exchange was expected to begin on a specified date. After the conversion, only authorized participants may create and redeem shares, as described in the prospectus, while other investors trade shares on the exchange at market prices.

Role of Bitwise Asset Management

BITW is part of a broader family of crypto-related investment products managed or sponsored by Bitwise Asset Management, which is described in multiple news releases as a crypto asset manager based in San Francisco. Bitwise reports that it offers a suite of crypto investment products that includes index funds, ETFs, separately managed accounts, private funds, hedge fund strategies, and staking-related strategies. The firm highlights its focus on working with financial advisors, wealth teams, and institutional investors seeking access to bitcoin, Ethereum, decentralized finance (DeFi), non-fungible tokens (NFTs), Web3, and other crypto-focused equity indexes.

Bitwise also operates an indexing subsidiary, Bitwise Index Services, which maintains several crypto indexes, including the Bitwise 10 Large Cap Crypto Index and related variants. Regular index reconstitution announcements describe how constituents and weights are updated based on the firm’s published methodology.

Risk considerations

Bitwise’s disclosures emphasize that BITW is subject to significant risk and heightened volatility. The firm notes that investors may lose their entire investment and that crypto assets themselves are subject to large price swings, potential loss or theft, and periods of illiquidity. Additional risk factors highlighted in Bitwise materials include:

• Crypto asset risk: Crypto markets are described as relatively new and highly speculative, with prices that can fluctuate widely and may be affected by regulatory actions or changes in market acceptance.
• Liquidity risk: Bitwise notes that crypto markets may experience periods of illiquidity, which can make it difficult to buy or sell positions at desired prices and may increase the variability between the fund’s net asset value and its market price.
• Regulatory risk: Future or current regulations by U.S. or foreign authorities could adversely affect investments in the fund or the underlying crypto assets.
• Blockchain technology risk: Certain investments may be exposed to risks associated with blockchain technology, including potential vulnerabilities, evolving regulation, and operational uncertainties.
• Nondiversification risk: Because the fund is nondiversified, changes in the value of a small number of holdings may have a larger impact on the fund’s overall value.
• Recency risk: Bitwise notes that the fund is recently organized, giving prospective investors a limited operating history on which to base decisions.

Bitwise repeatedly states that investors should carefully review the prospectus, including detailed risk factors, objectives, charges, and expenses, before considering an investment in BITW or any related product.

BITW in the context of Bitwise’s product lineup

Across multiple press releases, Bitwise identifies BITW as the world’s largest crypto index fund and notes that it is part of a lineup that also includes crypto industry equity ETFs, bitcoin and Ethereum futures ETFs, Web3 and Metaverse equity indexes, and crypto-focused separately managed accounts. The firm positions BITW as a way for investors who are interested in the long-term potential of crypto assets, but uncertain about which individual assets may succeed, to gain exposure to a diversified basket that is periodically updated based on market capitalization and eligibility criteria.

Bitwise also highlights the role of its index advisory board and index committee in overseeing the methodology behind the Bitwise 10 Large Cap Crypto Index, including screening rules related to liquidity, custody, security, and regulatory status. These governance structures are intended to help the index reflect the investable large-cap segment of the crypto asset market as defined by Bitwise’s rules.