Bitwise Crypto Industry Innovators ETF Jumps on Bitcoin Surge

Last week, the Bitwise Crypto Industry Innovators ETF benefited from a rise in bitcoin prices, amid speculation that spot Bitcoin ETFs could be approved by US regulators. Such a move might see crypto recover from last year’s sharp falls. Top holdings Coinbase and MicroStrategy both gained, though the former has since fallen.

• Bitcoin tops $35,000 for first time since May 2022, boosting crypto players including Bitwise Crypto Industry Innovators ETF top holdings Coinbase and MicroStrategy.
• US regulators signal openness to spot Bitcoin ETFs.
• Analysis suggests a US spot Bitcoin fund could attract $14bn in first year.

The Bitwise Crypto Industry Innovators ETF [BITQ] jumped 7.1% in the week ending 27 October. Aiding BITQ’s performance was top holding Coinbase [COIN], which spiked 6.3% on the news that bitcoin surpassed $35,000 on 24 October for the first time since May 2022 during intraday trading. However, the company fell 5.2% across the week ending 27 October.

The fund’s second-largest holding, MicroStrategy [MSTR], saw its stock climb 16.9% over the course of the week.

Bitcoin’s rise comes amid speculation regarding US approval of spot Bitcoin ETFs. BlackRock is among financial institutions applying for the funds. Bitcoin rose 13.9% over the course of that week.

BITQ offers exposure to companies in the Bitwise Crypto Innovators 30 Index, which features companies focused on the crypto industry. As of 30 October it had assets under management of $74.1m.

Major Players

BITQ’ s performance has reflected fluctuations in the Bitcoin space. While bitcoin is up, the performance of other crypto assets has been more measured: bitcoin gained 108.7% year-to-date as of 29 October, but Ethereum was up a more moderate 50.1%. Meanwhile, tokens are to delist at a rate never seen in the industry’s history, with 3,500 expected to delist by the end of 2023.

BITQ rose 100.6% year-to-date as of 27 October. However, the fund has declined 29.2% since 13 July, when it reached a high of $11.18 at closing. The ETF is up a more modest 52.1% over the past 12 months.

Crypto exchange platform Coinbase was the top asset in the BITQ portfolio as of 27 October, with a 10.7% share. Coinbase’s second quarter (Q2) earnings of $708m in August slumped 8% quarter-over-quarter; it reported 37% lower trading volumes and 12% lower transaction revenue. Its Q3 earnings are due this week on 2 November.

However, the company remains optimistic, especially given the potential approval of spot Bitcoin ETFs. “Our ambition remains unchanged: to build trusted and easy-to-use products and services to bring over 1 billion people into crypto. In Q2 we made further progress toward this bold goal, such as expanded access to derivatives products to customers outside the US and being selected by many leading asset managers to provide critical infrastructure underpinning their proposed Bitcoin spot ETF products,” the company wrote in its Q2 shareholder letter.

The COIN share price was up 100% year-to-date on 27 October.

MicroStrategy was the second-largest holding in BITQ, with a 10.4% weighting. The software company reported late July that the company owned 152,800 bitcoin, equal to $4.6bn in value, at its Q2 earnings.

Andrew Kang, CFO at MicroStrategy, said the firm’s acquisition of 12,333 bitcoin between April and June was “the largest increase in a single quarter since Q2 2021”, adding, “We did so against the promising backdrop of increasing institutional interest, progress on accounting transparency and ongoing regulatory clarity for Bitcoin.”

MicroStrategy reported Q2 revenue of $120.4m, down 1% year-on-year. Software licence revenue worth $35.4m rose 4%, while subscription services revenue of $19.9m increased 42%. Earnings per share of $2.35 were triple analyst forecast of $0.72.

Investors in the crypto space will keenly watch the company’s Q3 earnings this week, due 1 November. Zacks Equity Research forecasts earnings per share of $0.74, a 177.1% rise year-over-year.

Crypto Revival Ahead?

Investors are bullish on crypto with Bitcoin’s return to growth, following a period of decline after the high-profile collapse of the FTX crypto exchange a year ago.

BITQ still has a long road to travel to regain levels of November 2021, when it reached $33.92; it closed at $6.80 on 27 October, down 79.95% from that period.

However, the approval of spot Bitcoin ETFs would likely transform the wider market offering ordinary investors greater exposure to crypto and an alternative to Bitcoin futures funds. On 26 October, Gary Gensler, chair of the US Securities and Exchange Commission (SEC), said the regulator was considering eight to 10 filings for potential bitcoin ETFs. The SEC is not challenging a ruling that it should not have rejected an application from Grayscale Investments to create a spot Bitcoin ETF from an existing trust — a fact which is widely regarded as an indication that change lies ahead.

Blockchain company Galaxy estimated in October that a spot Bitcoin fund in the US could attract $14bn in the first year. This might spark growth for the whole crypto industry, benefiting ETFs including BITQ.

At TipRanks, the average 12-month target price for 30 analysts offering a position on BITQ is $10.91, reflecting a 60.4% increase from 27 October and suggesting bullish sentiment.

At MarketBeat, the consensus among 25 analysts is to ‘hold’ Coinbase stock.

A target price of $77.38 reflects growth of 9.3% over the same period.

Four analysts offering an outlook on MicroStrategy shares at TipRanks have an average target of $433.25, reflecting a 6.5% increase from its last close, alongside a rating of ‘moderate buy’.