Summary BITQ offers exposure to bitcoin-related equities, but introduces additional operational and business risks compared to direct bitcoin investment. The ETF is highly concentrated, with top holdings like MicroStrategy and Coinbase heavily influencing performance and adding company-specific risk. BITQ is volatile, directionally correlates with bitcoin, and has a higher expense ratio than direct bitcoin ETFs, making it less attractive for pure bitcoin exposure. Given these factors, I recommend a HOLD rating on BITQ, suggesting investors consider direct bitcoin funds for simpler, lower-risk exposure. Bitwise Crypto Industry Innovators ETF ( BITQ ) is an equity ETF designed to provide investors with exposure to the equity of companies involved in bitcoin. Before investing in this strategy, one must be aware of the additional layer of risks involved in holding a portfolio of companies involved in the bitcoin market. If one is seeking direct exposure to bitcoin, it may be worth considering one of the bitcoin funds as opposed to an equity strategy. BITQ holds roughly 30 individual equities of companies that span from bitcoin miners to banks and asset managers. Overall, the basis for the strategy is to hold a portfolio of "picks and shovels" companies building out the core infrastructure for bitcoin, including miners and brokerages. Interestingly enough, Strategy ( MSTR ), formerly known as MicroStrategy, is the portfolio's top holding despite having minimal involvement in the development of the bitcoin ecosystem. Nonetheless, Strategy is a large holder of bitcoin through a leveraged debt & equity issuance strategy for acquiring bitcoin. The target balance for the strategy is to allocate a minimum of 80% of the portfolio to Tier 1 crypto innovator companies whose primary focus is in the crypto market with the remaining 20% in Tier 2, large-cap companies with diversified business interests that include "one significant public business line focused on the crypto market." Accordingly, for a company to be classified as a Tier 1 company, 75% of their revenue must derive from servicing cryptocurrency markets. This includes crypto mining firms, crypto mining equipment suppliers, crypto financial services companies, and other financial institutions servicing primarily crypto-related clientele. Companies can also be classified as Tier 1 organizations if 75% of net assets are direct holdings of bitcoin, Ethereum, or other related cryptocurrencies, resulting in Strategy being classified as a Tier 1 Crypto Innovator. Corporate Reports With BITQ holding 30 companies, company concentration will be greater than when compared to larger, more diverse portfolio strategies. Accordingly, the top 10 holdings account for 60.35% of the total portfolio weight. This may mean that the direction of the portfolio strategy can be determined primarily by the top 10 holdings, which include bitcoin miners and a brokerage platform. Corporate Reports Strategy is by far the most heavily weighted company in the strategy, accounting for 11.97% of the portfolio. Though my most recent research covering MSTR is quite dated , I believe the overview can be helpful in assessing the company. MSTR has a unique investment proposition in which the organization issues debt and equity to buy bitcoin in a flywheel fashion. The organization sells this strategy as a leveraged bitcoin fund. The other side of the business consists of legacy operations relating to its business intelligence platform, which many investors in MSTR downplay as the organization transforms into a bitcoin strategy. Given the weight of MSTR in the portfolio, I recommend potential investors research this company prior to making an investment decision in BITQ. The second-largest holding in BITQ is Coinbase Global ( COIN ), a cryptocurrency brokerage platform, at 9.45% of the portfolio weighting. Many of the names following are mining organizations, with MARA Holdings ( MARA ) being by far the largest miner in the cohort. Though my research covering MARA is also dated, I believe understanding the company's structure can help investors determine whether BITQ is an appropriate investment strategy. In short, MARA is a cryptocurrency mining company that began diversifying its business strategy last year into data center infrastructure, including submerged server cooling units. Though the mining industry is power-intensive, the strategy has shifted in the last few years from strictly mining to offloading heat generated from the servers as a form of energy production. Overall, the industry is relatively volatile, with profitability remaining relatively challenged. Given the volatile nature of bitcoin and reporting requirements, financial analysis of the industry can be relatively challenging and may not appropriately represent the industry. FinChat Additionally, given the volatility of bitcoin, fund performance can drastically vary from period to period, showing large gains or losses at any given time. Corporate Reports Year-to-date, BITQ has outperformed the S&P 500 ( SPX ) despite the drastically larger drawdown. TradingView As a result of the volatility in the bitcoin and related market, this strategy may be best suited for active traders or those willing to undertake major short-term risks. In general, BITQ is directionally correlated with the underlying bitcoin market. Under this notion, investing in BITQ may add an additional layer of operational risk when compared to a direct investment in bitcoin. Given that the equities in the portfolio are businesses and not a commodity, one must consider the business operations in addition to bitcoin performance as an associated risk. This may also include industry risk, political risk, and financial performance. TradingView BITQ has an expense ratio of 80bps, making BITQ relatively more expensive than comparable strategies. Given the relative correlation between related equity ETFs and bitcoin ETFs, it may be worth considering investing in bitcoin ETFs given the relative performance, lower fees, and comparable performance. Seeking Alpha My recommendation is to take into consideration the broader risk profile of the portfolio companies that make up BITQ. If seeking bitcoin exposure, it may be wise to consider one of the bitcoin funds over the equity ETFs, as many of the business-related risks aren't prevalent. I am recommending BITQ with a HOLD rating.
