As Bitcoin transitions from a niche interest to a mainstream financial asset, various investment avenues have emerged beyond direct purchase. This article explores the expanding landscape of Bitcoin ownership, including ETFs, ETPs, and Trusts, reflecting its growing acceptance. According to the 2023 Global Crypto Hedge Fund Report by PwC, CoinShares, and AIMA, spot trading in crypto-assets has surged, with 69% of hedge funds participating, up from 43% the previous year. The report also highlights a decline in derivative investments due to counterparty risks. This article examines these trends and the performance of digital asset funds, offering insights into the evolving strategies of crypto hedge funds.
From a niche for blockchain enthusiasts, Bitcoin continues to grow and gain acceptance as a mainstream financial instrument. As the adoption has risen, different ways are arising to own the asset other than the traditional way of buying the asset directly such as ETFs, ETPs, Trusts, etc.
According to the 5th Annual Global Crypto Hedge Fund Report (2023) by PwC, CoinShares, and AIMA, over two-thirds (69%) of all participants in the survey are engaging in crypto-asset investments through spot trading, a notable increase from 43% in the previous year’s report. The survey was conducted in Q1 2023 across a sample of 131 crypto-native hedge funds.
In contrast with directly investing in the spot market of cryptocurrencies, several alternatives exist such as derivatives, venture capital, and structured products. According to the PwC report, the proportion of respondents investing in crypto-assets via derivatives declined to 38% in 2023, down from 52% in 2022, possibly due to a heightened awareness of risks associated with counterparties such as Genesis and FTX.
91% of Digital Asset Funds are Invested in Bitcoin
Source: PwC, CoinShares, AIMA
The majority of crypto hedge funds performed significantly better than the price of BTC during 2022. While Bitcoin’ performed -64% from 31 December 2021 to 31 December 2022, most strategies handled the bear market better than the benchmark (with the exception of fund of funds).
Digital Asset Fund Performance by Strategy 2022
Source: PwC, CoinShares, AIMA
Regarding investment strategies, 31% of respondents in 2023, up from 2022’s 10%, are taking a passive approach. The complexity of the technology in this sector can be challenging for those not deeply immersed in it. Consequently, a growing number of fund managers seem to be opting for passive strategies to access this market despite passive strategies returning a loss of 37% on average in 2022.
In the realm of hedge funds, 23% report utilizing actively managed funds or funds of funds for their crypto-asset investments. Additionally, 15% indicate their involvement through venture capital investments in this sector.
For investors that want exposure to Bitcoin without handling their own private keys, there are several alternatives such as passive funds, active funds, mining stocks, and venture capital. This section dives into some of the household names in the Bitcoin ecosystem.
Assets Under Management of Largest Bitcoin Passive Products
| # | Fund | AUM ($) | Inception Date | Expense Ratio | Domicile |
| 1 | Grayscale Bitcoin Trust (GBTC) Grayscale is the world’s leading crypto asset manager in assets under management with around $24 billion just under their Bitcoin Trust. It has similar trust for other cryptocurrencies like Ethereum, Litecoin, Solana, etc. The investors are issued shares against the capital they invest and the trust purchases BTC with the invested money. The price of a share reflects the value of Bitcoin held per share. However, the price of a share may not reflect the true value of the Bitcoin held as it may be sold at a premium or discount. Additionally, it is not available for exchanges and only over-the-counter (OTC). | $24.05B | 25/09/2013 | 2.0% | United States |
| 2 | Purpose Bitcoin ETF (BTCC) BTCC is the world’s first and largest spot Bitcoin ETF with $1.4 billion in assets under management. Based out of Canada, it provides investors an opportunity to own BTC without going through the hassle of creating an account or wallet for purchasing Bitcoin. | $1.4B | 09/11/2021 | 1.49% | Canada |
| 3 | ETC Group Physical Bitcoin (BTCE) Based out of Germany, BTCE is the largest spot Bitcoin ETP in Europe with $1.04 billion in assets under management. It is also the first European Bitcoin ETP to offset its carbon emissions. 100% physically backed by Bitcoin, it offers the investors an alternative to selling on the exchange by letting them redeem the ETP for actual Bitcoin. | $1.04B | 08/06/2020 | 2.0% | Germany |
| 4 | XBT Provider Bitcoin Tracker Euro (COINXBE) Launched in 2015, XBT Bitcoin ETP is the world’s first Bitcoin-based security available on a regulated exchange, allowing for convenient exposure to the leading digital asset. Based out of Sweden, it has $778 million in assets under management and it closely tracks the price of actual Bitcoin. | $778M | 18/05/2015 | 2.5% | Sweden |
| 5 | CoinShares Physical Bitcoin (BITC) CoinShares physical Bitcoin ETP offers investors a straightforward alternative to directly buying Bitcoin. Domiciled in Jersey, it has $531 million in assets under management. Users can also redeem the fund units for actual Bitcoin. | $531M | 19/01/2021 | 0.98% | Jersey |
| 6 | 21Shares Bitcoin ETP (ABTC) 21Shares Bitcoin ETP (ABTC) is 100% physically backed by BTC. It tracks the performance of BTC and offers investors a simple and secure way to gain BTC exposure in their portfolio. Based out of Switzerland, it has $519 million in assets under management. | $519M | 24/02/2019 | 1.49% | Switzerland |
Source: Cointelegraph Research, CryptoResearch.Report
The evolving landscape of Bitcoin investment reflects its growing stature in the financial world. This article has delved into various investment options, from direct purchases to sophisticated financial products like ETFs, ETPs, and Trusts. The insights from the 2023 Global Crypto Hedge Fund Report reveal a noticeable shift towards spot trading among hedge funds, indicating a preference for simplicity amid complex market conditions. Conversely, the decline in derivative investments underscores heightened risk awareness. As fund managers adapt, exploring passive and active strategies, the crypto investment domain continues to reshape, promising diverse opportunities and challenges for investors keen on leveraging Bitcoin’s potential.
