One of the benefits of the evolution of cryptocurrency as an investable asset class is that investors no longer have to own assets such as bitcoin or ether to get in the game.
In recent years, an increasing number of publicly traded companies took on the label “crypto-correlated,” and exchange traded funds came to market to provide broad access to that trend. The Invesco Alerian Galaxy Crypto Economy ETF (SATO) is part of that group.
SATO debuted last October and follows the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index. That gauge’s components are “companies that are materially engaged in cryptocurrency, cryptocurrency mining, cryptocurrency buying, or enabling technologies and exchange-traded products,” according to Invesco.
While there are a growing number of ETFs addressing crypto-correlated equities, SATO stands out in this crowded field because it holds stocks as well as more direct avenues to crypto ownership, including the Grayscale Bitcoin Trust (GBTC). That’s SATO’s largest holding at a weight of 13.40%, which is one indication that SATO could be of value to advisors and investors.
“In a survey by Bitwise and ETF Trends (now a part of VettaFi) advisors were asked if they would rather invest in assets, equities, or both. The majority of advisors preferred a combination of both (47%), and more actually preferred crypto equities (28%) to crypto assets (24%).(2) Accordingly, most crypto-related ETFs track an index of common stock equities, which provide an indirect (yet still strong) exposure to the price of Bitcoin. These companies include crypto miners, crypto exchanges, crypto banks, crypto buyers, and other players in the crypto ecosystem,” noted Alerian analyst Roxanna Islam.
An advantage of SATO is that it avoids the short-termism associated with futures-based strategies, and while there are still no spot bitcoin ETFs available to U.S. investors, GBTC is often viewed as the next best thing.
Additionally, a fund like SATO is applicable for investors who want to avoid the volatility of directly owning a digital asset, and for those that don’t want to set up digital wallets and deal with multi-factor authentication and the like.
“Depending on investor needs, there are different ways to invest in Bitcoin. Investors who value direct ownership of Bitcoin may prefer to own Bitcoin in a private wallet or a crypto exchange. Those who want to track the price of Bitcoin in a more familiar structure may use a futures-based ETF (with some price divergence) or a spot-based ETF (when one is eventually approved within the U.S.). And those who want some exposure to Bitcoin prices in addition to long-term themes of digital transformation and/or digital asset equity sector exposure may prefer an ETF which tracks an index of crypto and blockchain equities,” concluded Islam.
For more news, information, and strategy, visit the Crypto Channel.
vettafi.com is owned by VettaFi, which also owns the index provider for SATO. VettaFi is not the sponsor of SATO, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.