- Top holdings include Bitfarms, Cleanspark and Argo Blockchain.
- Investment is limited to miners using at least 50% renewable energy sources.
- The fund broadens the scope of bitcoin-related investment products.
Under the spotlight this week was Valkyrie Funds. On Monday, the digital assets firm received the green light to list shares of Bitcoin Miners ETF (WGMI) on the Nasdaq. Shares hit the open market on Tuesday with an initial price of $26.20 per share. The ETF finished the week in positive territory, gaining 1.68%.
And while Bitcoin Twitter enjoyed the ETF’s ticker (WGMI, or “we are going to make it” in internet parlance), the product stands as yet another vehicle for retail traders to gain exposure to the Bitcoin industry.
What’s an exchange-traded fund?
An exchange-traded fund (ETF) is an index or basket of securities that trade like a stock. ETFs are a low-cost way to diversify a portfolio while maintaining liquidity. A fund manager or advisor can manage the ETF passively or actively and collect a management fee. For example, the SPDR S&P 500 (SPY) is a popular passively managed ETF that tracks the S&P 500 composite.
In this case, WGMI is an actively managed ETF holding a basket of publicly traded bitcoin and cryptocurrency mining companies. The benefits of ETFs are apparent when considering the challenge of buying all 500 companies in the S&P 500 or allocating funds across the mining industry.
WGMI will invest at least 80% of its assets in bitcoin mining companies that Valkyrie expects to provide the highest capital appreciation. Companies that hold a significant portion of their assets in bitcoin or primarily generate revenue directly from mining, lending or transacting in bitcoin, or manufacturing bitcoin mining equipment may comprise up to 20% of the assets. The fund may also invest up to 5% of its assets in the debt instruments of miners.
Additionally, the fund will screen miners using an ESG (environmental, social and governance) criterion. Valkyrie has set the threshold to miners using at least 50% renewable energy sources. WGMI carries an expense ratio of 0.75%, which translates to $7.50 in annual fees for every $1,000 invested. Comparatively, the average ETF expense ratio is 0.44%.
As of Feb. 10, the ETF holds a total of 20 stocks with geographic exposure split between North America (82.72%), Europe (9.82%) and Asia (7.46%). The top three holdings include Bitfarms (BITF), Argo Blockchain (ARBK) and Cleanspark (CLSK). The table below provides the list of holdings and their weightings.
Alternatives to WGMI include Viridi Cleaner Energy Crypto Mining & Semiconductor ETF (RIGZ), Bitwise Crypto Industry Innovators ETF (BITQ) and Valkyrie Balance Sheet Opportunities ETF (VBB). The differences between WGMI and RIGZ are indistinguishable. Each fund holds 20 stocks, of which 15 are similar. On the other hand, BITQ provides a rich exposure to cryptocurrency markets via miners, exchanges, asset managers and banks. Lastly, VBB focuses on companies holding bitcoin on the balance sheet. A critical factor that all four funds share is active management. Hence future performance will be determined by the fund managers’ competence.
Investors in well-established industries such as precious metals, oil and commodities have various financial products to gain exposure. Bitcoin will be no different. The industry is growing, and as a result, it is financializing. WGMI broadens the depth of financial products available to retail and institutional investors seeking bitcoin-mining exposure.