VanEck Bitcoin Trust ETF May Not Be The Optimal Bitcoin Fund To ‘HODL’

VanEck Bitcoin Trust ETF (BATS:HODL) is a passive portfolio strategy meant to track the price of Bitcoin (BTC-USD). The portfolio offers retail investors the ability to add BTC holdings to their tax-exempt retirement accounts, which, I believe, has broadened the investor pool for the once decentralized currency. Given the dynamic shift in traders for the cryptocurrency, many of the investment benefits, such as uncorrelated returns, have diminished as a result of by whom and how the assets are held. Given that I am not a BTC trader and view this investment strategy more as an asset allocation, I cannot recommend a price target for trading purposes.

Comparing liquidity and AUM with HODL’s peer BTC ETF strategy managed by iShares, the iShares Bitcoin Trust ETF (IBIT), I cannot recommend HODL as a BUY. I recommend HODL with a HOLD rating with a recommended asset allocation of 3-5%.

Be sure to review my coverage of IBIT as much of the information presented may overlap:

IBIT Is A Great Vehicle For BTC Investing

Should You HODL?

HODL was one of the many BTC ETFs that entered the market after the much-anticipated SEC approval of bitcoin ETFs on January 10, 2024. This landmark approval allowed for fund managers to sell managed portfolios of spot BTC, in which the portfolios can buy and hold BTC directly. Approval of these ETFs led to a massive inflow of funds within the first few days of trading, resulting in a massive $4.6b inflow across the various BTC ETFs. Fund flows have since waned but still remain relatively positive, depending on the fund.

Considering the chart below, there may have been repositioning into the ETFs as the Grayscale Bitcoin Trust (GBTC) experienced massive outflows post-SEC approval. I believe much of the shift was driven by GBTC’s total expense ratio of 1.5% when compared to the low cost of competing ETFs. HODL’s expense ratio is a mere 20bps, slightly higher than iShares’s IBIT at 12bps.

Specific to HODL, the majority of the funds flowed in mid-March and have remained in relatively low volume transactions, suggesting the ETF is being bought and held as an alternative investment vehicle.

One of the hazards that came with the launch of these ETFs was the institutionalization of BTC in which BTC is now managed in tandem with other equity and debt instruments. What I mean by this is that BTC now has exposure to cash raises, portfolio rebalances, and other portfolio management strategies that may benefit or harm the direction of the core asset. Though this isn’t necessarily a bad thing, this has led to BTC having more correlation with other investment assets that has changed the dynamic of BTC providing uncorrelated returns. Looking at the correlation coefficient with the NASDAQ (QQQ), BTC shows its highest levels of correlation with the index during times of distress.

Comparing HODL to IBIT

Given that IBIT and HODL are essentially managed in tandem, I believe comparing both of these ETFs will make do for an investment rationale, with the assumption that the investor is seeking to invest in BTC. At a high level, IBIT does have a higher expense ratio of 12bps compared to HODL’s 20bps. This factor will make IBIT more appealing given the lower costs associated with holding the asset, net of returns. IBIT also has a much larger AUM of $18b, overshadowing HODL’s AUM of $620mm.

I believe liquidity should be a major factor when considering investing in a closed ETF, as shares are traded on the open market as opposed to being redeemed by the investment company. As a result of the AUM, IBIT holds 307k BTC within the portfolio; HODL holds 10k BTC. Net of asset value, IBIT appears to be a much more appealing investment opportunity given the lower expense ratio and higher liquidity. Considering that both ETFs trade in tandem with BTC spot, I believe IBIT should be favored over HODL given the factors listed above.

As a result, I cannot recommend HODL as a BUY given the superior structure offered by IBIT. I recommend HODL with a HOLD recommendation in favor of IBIT.

For more information on HODL & IBIT, please visit the VanEck & iShares sites.

VanEck HODL

iShares IBIT

Again, this is not a recommendation for holding BTC and should not be used for active trading purposes. The purpose of this analysis is to understand the ETF and should only be used for asset allocation purposes.