By Christopher Gannatti, CFA, Global Head of Research
Today, we are all treated to a bit of history: A new ingredient, bitcoin, became a lot more convenient for investors of all types to participate in. New ingredients or asset classes never guarantee any outcome, but they do bring new risk, return and correlation profiles to the table.
A Bit of History…
Bitcoin was launched back in 2009, but in those early years—even if we all wish we could go back and make that allocation knowing what we now know about bitcoin’s price performance—the degree of technical acumen required to allocate was immense. There are stories of thumb drives and passphrases being thrown away and even people searching landfills to find devices that could hold millions of dollars’ worth of bitcoin.
Bitcoin: A New Currency
Currencies facilitate the exchange of value, and this is what allows people not to have to do everything for themselves all of the time. For instance, as you go through your day, you might turn on a light switch or watch a program on your TV or computer. In a world without money, somehow you have to create the electricity, the light, the computer and the program you are watching. In a world with money, you can pay for and enjoy these things without needing to build them yourself. Many things have been used as money, but gold has been the most successful and everlasting, as many currencies of even the most powerful nations have come and gone.
Fiat currencies always have a disadvantage versus gold because governments will always have a very human motivation to “print more.” Pausing for a moment since “fiat” is not a common term—fiat currency is meant to distinguish between money that is backed up by government regulation, fiat money, and money that is backed up by something physical, like gold. If a currency was backed by gold explicitly, it would not be a fiat currency. Printing more tends to lead to inflation, and fiat currencies have always ultimately become worth less and less and less until they go out of existence. Even world reserve currencies, like the U.S. dollar today, have seen this occur—albeit over very long time frames.1
There is no way to create more gold—it is difficult to mine, so that difficulty naturally limits the supply. Bitcoin’s protocol seeks to imitate this difficulty—time will tell if the world gets as much use out of bitcoin as it has out of gold.
WisdomTree, through its European subsidiary, launched its first exchange-traded bitcoin product in 2019 when European regulators allowed these listings on some exchanges, more than four years prior to the U.S.2 Consider:
• WisdomTree launched its bitcoin ETP in December 2019. The price of bitcoin was about $7,710.3
• At present, we see a price of bitcoin over $40,000, but this moves 24 hours a day, 7 days a week.4 Some of us recall a time in 2021 when it was significantly higher, but even the journey from 7.7k to 40k represents a 49% average annual return. However, bitcoin has been highly volatile, with significant drawdowns during such time, and should be considered highly speculative, involving a high degree of risk, including the potential for loss of the entire investment.
Why Does Bitcoin Exist?
In 2009, the global economy was recovering from the global financial crisis (GFC) of 2008–2009. In this highly visible failure of the traditional financial system, centralized actors, namely, all of the “too-big-to-fail” global banks, needed to be bailed out to “save the system.” Many were disappointed these banks overreached for returns, and then none of their leaders were held accountable for the subsequent systemic collapse.
If there was a way to transact without these centralized actors, there was an inherent motivation to give it a closer look. Bitcoin created a global, peer-to-peer, decentralized way to transmit value around the world. Immediately, there was very interesting functionality:
1. A New Currency: The GFC lowered confidence in traditional fiat currencies. Bitcoin’s protocol limits the supply such that no actor of any size could create bitcoin in an inflationary way, similar to how, in the past, certain currencies had their value tied to gold. On December 21, 2023, Argentina’s new government ratified and confirmed that contracts denominated in bitcoin could be recognized by the country’s courts. President Milei’s perspective regards countering financial inefficiencies and corruption through bitcoin.5 El Salvador’s government has embraced bitcoin as a currency in a similar way. While we’ve had our inflationary episodes since the COVID-19 pandemic, the developed world has enjoyed remarkable currency stability. A large portion of the world’s population does not have that advantage or comfort for their currency or their banking systems.
2. A New Way to Transmit Value: We recognize that much of banking was done with paper in the past, but if you were building a system today, there might be no reason to even consider including paper. If you are seeking to send money, there is no reason why it cannot occur nearly instantaneously, except for the fact that banks have been slow to speed up their legacy systems. Bitcoin transactions occur on a public blockchain for all to see, and the speed with which a new block can be mined is the speed with which a transaction can be finalized.
A New Landmark: The ETF Structure of Bitcoin Exposure to the Spot Price Is Now Available in the U.S.!
Market participants discussed this possibility for some time. On January 10, the U.S. Securities and Exchange Commission declared effective the registration statements for spot bitcoin ETFs, which launched on January 11. These products are very similar to how one might get exposure to the price of a commodity, like gold, where instead of being based on exposure through a derivative, like futures contracts, the exposure is based on holding the actual commodity. Gold is typically held in vaults; bitcoin, while not necessarily physical, has specialized cold-storage facilities to perform this function.
In the past, investors desiring bitcoin exposure tradeable on a platform either had to subject themselves to the possibility of widely moving discounts and premiums to net asset value OR to the changing shape—usually contango—of the bitcoin futures curve. Finally, a bitcoin ETF can provide exposure to the price of actual bitcoin.
Today, we are excited to announce the launch of a spot bitcoin Fund, the WisdomTree Bitcoin Fund (BTCW), for which it serves as sponsor and which provides investors with a simple, and cost-efficient way to gain exposure to the price of bitcoin, the native coin of the Bitcoin network.
1 Source: Ray Dalio, The Changing World Order: Why Nations Succeed and Fail, Simon & Schuster, 2021.
2 WisdomTree’s European business launched a bitcoin exchange-traded product on the Swiss Stock Exchange, the “SIX,” on December 3, 2019. This investment structure, to note, is not available to U.S. investors but is meant to illustrate the contrast between the timeline of regulatory approval in the U.S. and other global markets.
3 Source: Bloomberg, with data as of December 2019.
4 Source: Bloomberg, with data as of January 2024.
5 Source: Ibrahim Ajibade, “Argentina Approves Bitcoin (BTC) as ‘Official’ Currency,” FX Empire, 12/21/23.
Originally published 11 January 2024.
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Important Risks Related to this Article
To view the prospectus, please click here.
Bitcoin and, accordingly, the WisdomTree Bitcoin Fund, which holds bitcoin, are highly speculative and involve a high degree of risk, including the potential for loss of the entire investment. An investment in the WisdomTree Bitcoin Fund involves significant risks (including the potential for quick, large losses) and may not be suitable for all shareholders. You should carefully consider whether your financial condition permits you to invest in the WisdomTree Bitcoin Fund, and you should be willing to accept more risk than may be involved with other exchange-traded products or ETFs that do not hold bitcoin.
Extreme volatility of trading prices that many digital assets, including bitcoin, have experienced in recent periods and may continue to experience, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. The value of the Shares is dependent on the acceptance of digital assets, such as bitcoin, which represent a new and rapidly evolving industry. Digital assets such as bitcoin were only introduced within the past two decades, and the medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental investment characteristics of digital assets. Regulatory changes or actions may affect the value of the Shares or restrict the use of Bitcoin, mining activity or the operation of the Bitcoin Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares. Digital Asset Markets may experience fraud, business failures, security failures or operational problems, which may adversely affect the value of Bitcoin and, consequently, the value of the Shares.
The WisdomTree Bitcoin Fund is not a fund registered under the Investment Company Act of 1940, as amended (“1940 Act”), and is not subject to regulation under the 1940, unlike most exchange- traded products or ETFs. The WisdomTree Bitcoin Fund is also not a commodity pool for purposes of the Commodity Exchange Act of 1936, as amended, and the sponsor is not subject to regulations by the Commodity Futures Trading Commission as a commodity pool operator or commodity trading advisor. The WisdomTree Bitcoin Fund’s shares are neither interests in nor obligations of the sponsor or the trustee or any of their affiliates.
The WisdomTree Bitcoin Fund has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the WisdomTree Bitcoin Fund has filed with the SEC for more complete information about the WisdomTree Bitcoin Fund and this offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the WisdomTree Bitcoin Fund will arrange to send you the prospectus if you request it by calling toll-free at 866.909.9473.
Neither WisdomTree, Inc., nor its affiliates, nor Foreside Fund Services, LLC, or its affiliates provide tax advice. All references to tax matters or information provided on this site are for illustrative purposes only and should not be considered tax advice and cannot be used for the purpose of avoiding tax penalties. Investors seeking tax advice should consult an independent tax advisor.
Foreside Funds Services, LLC, is the Marketing Agent for the WisdomTree Bitcoin Fund (BTCW). Foreside Fund Services, LLC, is not affiliated with WisdomTree, Inc. nor any other entities mentioned.
