Long-term investors know the key to success is time in the market. But as the recent performance of the new bitcoin exchange-traded funds shows, over the short term, timing the market has an impact, too.
If you bought into one of the new bitcoin ETFs within the first few weeks of their January 10 approval by the Securities and Exchange Commission, congratulations! In the six months that ended July 31, the median return for the first 10 funds that invest directly in bitcoin was 53.5%.
Nine of the 10 have nearly identical returns, ranging from 53.7% by Franklin Bitcoin (symbol EZBC) to 53.3% for Fidelity Wise Origin Bitcoin ETF (FBTC). All 10 trounced the 14.8% return of the S&P 500 over the period. (Bitcoin itself was up some 52%, measured by closing prices. Funds buy throughout the day, which accounts for some of the discrepancy.)
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If you waited a few months and jumped into the bitcoin pool at the end of March, condolences. You’re down about 7% over the past four months; investors in the S&P 500, meanwhile, gained 5.5%.
The similarity in the funds’ performance is not surprising, considering that expenses are also (mostly) comparable. Franklin’s fees are 0.19%; three of the ETFs currently charge 0.25%.
The outlier is the first bitcoin fund, Grayscale Bitcoin Trust (GBTC), charging 1.5%. Its six-month returns appear to lag significantly, but it’s important to note that on July 30, Gray-scale converted 10% of its shares into shares of its newly issued Grayscale Bitcoin Mini Trust (BTC), which has a low expense ratio of 0.15%. Investors in the original fund received shares in the new ETF, and the original fund’s returns were reduced by the spin-off. Prior to the spin-off, the Grayscale Bitcoin Trust’s returns were at the rear of the pack, but still competitive.
Buying stampede. Despite the funds’ volatility, investors have poured a cumulative $17.5 billion into digital-currency ETFs so far this year, according to fund research firm VettaFi. The iShares Bitcoin Trust (IBIT) has become the single most successful ETF launch in history, rising from nothing to $21.5 billion in assets in seven months.
The flow of dollars has sparked the launch of other cryptocurrency funds. On July 22, the SEC approved eight ETFs that invest directly in the second-largest digital currency, ethereum.
Crypto funds can add a little diversification to portfolios and give intrepid investors an easy way participate in the growth of new financial technologies, says Aniket Ullal, head of ETF data and analytics at CFRA Research. But he warns that cryptocurrencies are more than twice as volatile as the S&P 500, and they aren’t a perfect counterweight to stocks. Bitcoin plunged along with stocks in 2022, and struggled in this year’s summer sell-off.
Even the most enthusiastic cryptocurrency investors should pay close consideration to basics such as cost and volatility, says Bryan Armour, head of index fund and ETF research at Morningstar. He suggests keeping an allocation to crypto below 3% of portfolio holdings. “And if investors are wary of or don’t understand crypto, it’s completely okay not to invest,” he says. “Fear of missing out is never a good investment strategy.”
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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