Can Bitcoin and gold ETFs coexist? New fund aims for diversification with leverage
Fri June 28 2024
Amid the continually escalating growth of debt in the U.S. and around the world, many investors are starting to realize that the need for a reliable store of wealth is paramount, while at the same time understanding that society is in the middle of significant transformation regarding digital advancements.
For that reason, precious metals and cryptocurrency investors have started to “cross the aisle,” so to speak, and are opening to the possibility of investing in both asset classes to hedge their bets and secure their wealth in both physical and digital form.
It is from that ethos that Tidal Investments and Quantify Chaos Advisors have filed for a new exchange-traded fund (ETF) – The STKD Bitcoin & Gold ETF – with the simple goal of achieving “long-term capital appreciation.”
“The Fund is an actively-managed exchange-traded fund that seeks to achieve its investment objective by investing via U.S.-listed futures contracts as well as pooled investment vehicles, such as exchange-traded products, in two complementary asset classes, a modern digital asset class (Bitcoin) and a traditional asset class (gold),” the prospectus filed with the Securities and Exchange Commission (SEC) said. “The Fund uses leverage to ‘stack’ the total return of holdings in the Fund’s Bitcoin strategy together with the total returns of holdings in the Fund’s Gold strategy.”
“Essentially, one dollar invested in the Fund provides approximately one dollar of exposure to the Fund’s Bitcoin strategy and approximately one dollar of exposure to the Fund’s Gold strategy,” the filing said. “So, the return of the Gold strategy (minus the cost of financing) is essentially stacked on top of the returns of the Bitcoin strategy (minus the cost of financing).”
According to the prospectus, “The Fund will invest primarily in: Gold futures contracts; Bitcoin futures contracts; Underlying Funds providing exposure to gold; Underlying Funds providing exposure to Bitcoin; Cash and cash equivalents; and Reverse purchase agreements.”
This novel approach to leveraging both assets is intended to provide a smoother investing experience in an otherwise volatile and choppy landscape by taking advantage of the upside potential offered by Bitcoin and the more steady, low-volatile gains offered by gold.
Up to this point, BTC and gold have had a more adversarial relationship, with proponents in both camps known for their loyalty to their chosen investment and willingness to point out the flaws in the other (Peter Schiff and Michael Saylor come to mind). STKD provides the opportunity to set those differences aside and make a 100% leveraged bed on diversification. Through utilizing leverage, the ETF aims to amplify the returns of both Bitcoin and gold by “staking” a combination of futures contracts and existing ETFs focused on each asset class, allowing investors to take advantage of the performance of both in one investment product.
The basic premise behind the idea is that since Bitcoin and gold have historically exhibited low correlation when combined, they will offer stable growth.
"By blending assets with low correlation, the Fund aims to reduce the impact of short-term market fluctuations on the overall investment outcome, potentially providing a more stable investment trajectory," the filing said. It remains to be seen whether the SEC approves the application; however, as the regulator is known for exercising extreme caution when it comes to approving crypto-related ETFs, with concerns about market manipulation and volatility at the top of the reasons why such products get rejected.
However, with both gold and Bitcoin already having approved ETFs that trade on U.S. markets, most see the hurdle of approval as less of a challenge when it comes to an ETF that combines the two assets. The stacked ETF has an effective date of Sept. 9, 2024, per the filing, but no stock ticker or associated fees were been provided.
Source: https://kitco.com/