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Bitcoin, the world's largest cryptocurrency, surged past the $42,000 mark for the first time since April 2022. This represents a year-over-year increase of 142% in the cryptocurrency value. The milestone came on the back of broad enthusiasm about U.S. interest rate cuts and the imminent regulatory approval for Bitcoin ETFs.

The solid trading has spread to the ETF world as well. While most of the ETFs have returned handsomely, a few have more than doubled so far this year. These include Valkyrie Bitcoin Miners ETF (WGMI - Free Report), Bitwise Crypto Industry Innovators ETF (BITQ - Free Report), Blockchain & Bitcoin Strategy ETF (BITS - Free Report), First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT - Free Report) and iShares Blockchain and Tech ETF (IBLC - Free Report).

Investors' growing belief that the Federal Reserve will halt rate hikes amid cooling inflation is turning attention to potential rate cuts in the upcoming year. The move could push the Bitcoin rally to $44,000 before the spot Bitcoin ETF approval. According to CME’s FedWatch tool, traders are now pricing in a 70% chance for a rate cut by the U.S. central bank by next March.

The crypto industry is keenly awaiting the SEC's decision on applications for the first U.S. spot Bitcoin ETFs, with firms like BlackRock Inc. in the forefront. Bloomberg Intelligence suggests that a series of these products could receive approval by January 2024. Such a development would not only legitimize Bitcoin in the eyes of mainstream investors but also provide a more accessible avenue for investment, thereby potentially attracting a fresh influx of capital into the crypto market.

The combination of factors has rekindled interest in the crypto market, signaling positive sentiment among retail and institutional investors. With expectations of interest rate cuts and greater demand from ETFs, most traders anticipate the rally to continue, betting on bitcoin’s eventual rise to $45,000 by the end of March 2024.

Bitcoin's performance in 2023 has outpaced other assets like global stocks and gold. The derivative market has also seen significant interest, with record levels of open interest in Bitcoin futures and options. Additionally, the upcoming Bitcoin halving, which reduces the reward for Bitcoin mining and caps the supply, historically leads to price increases.

ETFs in Focus

Valkyrie Bitcoin Miners ETF (WGMI) – Up 181.9%

Valkyrie Bitcoin Miners ETF is an actively managed ETF that will invest at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations, and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. Valkyrie Bitcoin Miners ETF holds 22 stocks in its basket, with a double-digit concentration on the top four firms.

Valkyrie Bitcoin Miners ETF has amassed $25.7 million in its asset base, while trading in an average daily volume of 161,000 shares. It charges 75 bps in annual fees.

Bitwise Crypto Industry Innovators ETF (BITQ) – Up 164.3%

Bitwise Crypto Industry Innovators ETF helps investors capitalize on the wave of innovation. It tracks the Bitwise Crypto Innovators 30 Index, which measures the performance of the companies involved in servicing the cryptocurrency markets, including crypto mining firms, crypto mining equipment suppliers, crypto financial services companies, or other financial institutions servicing primarily crypto-related clientele.

Holding 29 stocks in its basket, Bitwise Crypto Industry Innovators ETF is concentrated on the top three firms. It charges 85 bps in annual fees from investors and trades in an average daily volume of 93,000 shares. Bitwise Crypto Industry Innovators ETF has attracted $102.2 million in its asset base.

Blockchain & Bitcoin Strategy ETF (BITS) – Up 153.3%

Blockchain & Bitcoin Strategy ETF is an actively managed fund that seeks to capture the long-term growth potential of the blockchain and digital asset theme. It takes long positions in U.S. listed bitcoin futures contracts and invests, directly and indirectly, in companies positioned to benefit from the increased adoption of blockchain technology. Blockchain & Bitcoin Strategy ETF will not invest directly in Bitcoin. It currently delivers exposure to blockchain companies through other ETFs, including the affiliated Global X Blockchain ETF.

Blockchain & Bitcoin Strategy ETF has attracted $16.4 million in its asset base. It charges 65 bps in annual fees and trades in an average daily volume of 3,000 shares.

First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT) – Up 127.9%

First Trust SkyBridge Crypto Industry and Digital Economy ETF is designed to provide exposure to companies that SkyBridge believes are driving cryptocurrency, crypto assets and digital economies-related innovation. SkyBridge identifies securities primarily via “bottom-up” research, focused on finding companies leading in the crypto industry ecosystem

First Trust SkyBridge Crypto Industry holds 30 stocks in its basket and charges 85 bps in fees per year from investors. It has amassed $25 million in its asset base and trades in an average daily volume of 26,000 shares.

iShares Blockchain and Tech ETF (IBLC) – Up 127.1%

iShares Blockchain and Tech ETF seeks exposure to a wide variety of companies that are involved in the development, innovation and utilization of blockchain and crypto technologies. It follows the NYSE FactSet Global Blockchain Technologies Index and holds 36 stocks in its basket.

iShares Blockchain and Tech ETF has gathered $10.4 million in its asset base and charges 47 bps in annual fees. It trades in a volume of 7,000 shares per day on average.

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