The rise of crypto & bitcoin ETFs: What investors are watching

00:00 Speaker A

I want to bring in Matt Kaufman, Calamos Investments head of ETFs for this week’s ETF report brought to you by Invesco QQQ. Matt, thanks for so much for being here. Obviously, we have seen, um, as crypto prices have moved higher, we have seen sort of an explosion here. Ever since we got these spot Bitcoin ETFs, there has been huge growth. What do people need to know as they look through this landscape, um, and look at the big growth that we have seen?

00:52 Matt Kaufman

Yeah, you showed that iBit stat of $85 billion. It wasn’t just the fastest growth in any ETF we’ve ever seen. Uh, it was remarkably so. It was five times faster than anything that we’ve seen in the ETF space. It’s it’s been a remarkable growth trajectory. I would say it’s, uh, it’s a nod to the adoption that we’re seeing in Bitcoin today. It’s not just a speculative asset, you know, which we’ve seen a wildly volatile ride for Bitcoin, but that volatility is starting to come down a little bit. We’re starting to see a maturation of the space, and I think it’s, uh, being shown in the flows. You’re seeing more than $100 billion tied to Bitcoin. You know, that that’s the largest one that that we’re seeing. You know, more than $2 trillion market cap. That’s where a lot of the flows are happening is in Bitcoin. But you’re right, it is a remarkable story.

02:21 Speaker A

And we were talking to an analyst from CoinDesk yesterday who said that even with that huge growth in the ETFs, it only something like five or five and a half percent of all Bitcoin is in ETFs. So what does that imply about the room for further growth?

03:03 Matt Kaufman

Yeah, we’re seeing a lot of financial advisors calling and saying we need a Bitcoin strategy. Um, you know, historically, the volatility has kept a lot of people on the sidelines. That’s not necessarily the case today. There’s ETFs in the marketplace that just don’t give you spot Bitcoin exposure, but can give you exposure with protection. That’s great for advisory platforms because now they can use that traditional framework that they’re used to using on their portfolios, but now apply it to Bitcoin and actually get improved risk-adjusted returns. You know, we’re seeing about one in five Americans owning crypto today. So you can see some adoption curve, you know, still happening there. But again, I think the the large movers are going to be the financial advisory communities, the trillions of dollars sitting inside those portfolios that now are looking for Bitcoin exposure.

04:29 Speaker A

Um, so when you talk about that sort of protected or hedged Bitcoin exposure inside some of these ETF rappers, we’ve talked to some other folks recently who have some of these, um, buffer sort of products. Um, at Calamos, how does that work? How do you protect against too much downside or too much volatility?

05:18 Matt Kaufman

Yeah, so Bitcoin is a large liquid asset now. There are ETPs like iBit, and so those are the frame, that’s the framework that we look for to be able to deliver protected exposure to an asset, you know, we’ve done it on S&P 500, on Nasdaq, Russell. You can do it on Bitcoin now. We launched the world’s first protected Bitcoin ETFs back in January, and we did it with three protection levels. You can put 0% at risk. So think about a risk-free rate, but getting, you know, no downside, tying your upside to the price of Bitcoin. We did 10% at risk or 90% protection, and then a 20% at risk product or 80% downside protection, and you get about a 40 to 50% upside on that product. So there’s, uh, there’s suites designed to deliver one-year performance tied to the price of Bitcoin. We’re seeing a lot of advisors start to use that in their portfolio. And then we just published some research as well regarding the use of those ETFs or those strategies inside of a portfolio. You know, most of those spot Bitcoin exposures, you know, those firms might say put 1 to 2% of your portfolio into Bitcoin. The reason that it’s only 1 to 2 is because of that volatility. It might increase returns, but it increases risk as well. Here, you can sell out of equities, move into the 20. Maybe you’re selling bonds into the 90, making cash and putting that into the zero and actually improve risk-adjusted returns. So I think Bitcoin not only is a large asset, but now advisors have a way to apply it to the portfolio that can actually improve performance and risk.

07:55 Speaker A

And Matt, I I when you look at those products, there’s they’re still relatively small, right? Both Calamos and at other places. What do you think, uh, you know, we’ve obviously seen rapid growth and interest in crypto assets. What do you think is going to be the tipping point for some of these protected ETFs?

08:41 Matt Kaufman

Yeah, if you look at a lot of the, they’re called 13F filings, you can see who owns a lot of the spot Bitcoin products, and we’re seeing a lot of retail investors and a lot of institutions. Some of those big hedge funds are some of the largest owners. Um, it’s not like they’re owning spot Bitcoin outright. You know, sometimes they’re doing what are called basis trades where this iBit is serving as a foundation for some of their strategies. The financial advisory is that big middle, that communities, the big middle that has yet to fully move in, uh, and they’re looking at how to actually apply Bitcoin to the portfolio. So we’ve raised more than $100 million in our suite just in over a few months here. The adoption has been good. The demand, I would say, is outpacing the current adoption, and that’s largely a framework of platform adoption, getting approved on a lot of platforms, going through due diligence processes, compliance committees. So, uh, we’re in the weeds now, but that that’s largely how you get those funds approved, and and I think that adoption’s going to only grow. We’re at the beginning of that hockey stick.