The biggest problem with Bitcoin (BTC:USD) ETFs is that, like single-stock ETFs, they only include a single investment, eliminating diversification, one of the ETF’s biggest positives. Fortunately, there are Bitcoin ETF alternatives.
Some of these alternatives could be ETFs holding other cryptocurrencies, technology ETFs that invest in companies benefiting from cryptocurrency and blockchain technology, and those that invest in companies using cryptocurrencies as part of their business models. MicroStrategy (NASDAQ:MSTR) immediately comes to mind.
The largest technology ETF by assets, according to VettaFi, is the Vanguard Information Technology ETF (NYSEARCA:VGT), which has $62.3 billion in net assets. That’s followed by the Technology Select Sector SPDR Fund (NYSEARCA:XLK), which has $61.7 billion.
The Bitcoin ETF alternatives I’m after are more thematically focused tech funds with much narrower specialties than just technology.
To qualify for inclusion, the trio of funds should preferably have net assets of at least $100 million and a connection to Bitcoin and the cryptocurrency ecosystem.
Here are three choices to buy instead of a Bitcoin ETF, such as the popular iShares Bitcoin ETF (NASDAQ:IBIT).
Amplify Transformational ETF (BLOK)
The Amplify Transformational ETF (NYSEARCA:BLOK) is one of the largest blockchain-related ETFs, with $884.6 million in net assets. The actively managed ETF invests in companies developing or using blockchain for their businesses—a simple premise.
As a result, you get a mix of businesses that include Bitcoin miners like cryptocurrency exchanges such as Coinbase Global (NASDAQ:COIN), fintech platforms like Block (NYSE:SQ), asset managers such as Galaxy Digital Holdings (OTCMKTS:BRPHF), even a plant-based meat company in Beyond Meat (NASDAQ:BYND).
The top 10 holdings account for 39% of its net assets. The largest three segments by weight are transactional (26%), miners (22%), and venture capital (11%). The three largest weights by industry are software (29%), capital markets (21%), and IT services (11%).
From a market cap sense standpoint, it’s a very diversified portfolio with small caps ($300 million to $2 billion) accounting for a little more than 50% of the portfolio, mid-caps account for another 20%, and large caps the remaining 30%.
BLOK trades higher today than it has since April 2022.
First Trust Indxx Innovative Transaction & Process ETF (LEGR)
First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR) is a much smaller ETF with just $102.6 million in net assets. Launched in January 2018, it has managed to ride the ups and downs of blockchain technology for five full years. That’s an accomplishment in itself in a cutthroat ETF industry.
The ETF tracks the performance of the Indxx Blockchain Index, a collection of stocks divided into three categories: Active Enablers, Active Users, and Active Explorers. The Active Enablers are companies that are directly tied to blockchain technology. Active Users use blockchain technology supported by Active Enablers or have test cases for using Blockchain. Active Explorers are companies exploring blockchain technology but don’t have a test case yet.
Active Enablers get a score of one, Active Users get a score of two, and Active Explorers get a score of three. Active Explorers are eliminated from the portfolio, with Active Enablers and Active Users accounting for 50% each. The stocks in each category are then equally weighted. The holdings are capped at 100. The portfolio is reconstituted and rebalanced twice a year.
The median market capitalization of the portfolio is $88.0 billion. The top three sectors by weight are financials (39.79%), technology (30.31%), and communication services (9.11%).
LEGR is up 43.3% over the past five years and 37% since its inception in 2018.
Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP)
The Bitwise Bitcoin and Ether Equal Weight Strategy ETF (NYSEARCA:BTOP) was launched in September 2023. It currently has $5.2 million in net assets.
The actively managed ETF does not invest directly in Bitcoin or Ethereum (ETH:USD). Instead, it buys directional exposure to both through CME Futures contracts. Its 0.85% expense ratio is one reason the fund hasn’t grown beyond $5 million.
While it’s nice to have a bet in place for the top two cryptocurrencies by market cap, at 85 basis points, most investors will probably buy the iShares Bitcoin ETF (NASDAQ:IBIT) at 0.25% and wait for the spot Ethereum ETFs to get the green light from the Securities and Exchange Commission.
The fund managers equally weigh between Bitcoin and Ethereum futures contracts, rebalancing to 50/50 each quarter.
For those seeking professional management and who don’t mind the fees, BTOP is an interesting alternative to investing in one or the other but not both.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
