What is an ETF?
An ETF is an exchange-traded fund, which means you are indirectly purchasing a share — or a fraction of a share — in all of the companies that the fund holds. For example, if you buy Vanguard’s ASX 300 ETF (ASX:VAS)*, you’re purchasing a part of all 300 companies (sometimes more) that the fund holds. These funds are referred to as “exchange-traded” since they are listed on a particular stock exchange.
While the Australian Stock Exchange (ASX) now allows you to gain exposure to the rises and falls of cryptocurrency, there is a catch. The fund (ASX: CRYP) does not directly hold any cryptocurrencies. So, if you want to invest in popular cryptocurrencies like Bitcoin, Ethereum, or Ripple, you’ll need to use alternative trading platforms that specialise in cryptocurrency trading.
According to BetaShares, the fund currently invests in 34 companies that are “at the forefront of the dynamic crypto-economy.” These companies are major players in the crypto-world, have a significant impact on its success or failure, and will continue to benefit (if properly managed) if the overall value of major cryptocurrencies rises over time. This is due in part to the fact that many of them are required to hold substantial amounts of cryptocurrency themselves. So, in essence, you are investing in companies that invest in cryptocurrencies such as Ethereum and Bitcoin.
How Is Cryp Constructed?
CRYPs underlying index is cleverly designed to ensure the largest Crypto focused companies, making the most waves in the crypto space are in high concentration. The Bitwise Crypto Innovators Index serves as the ETF’s benchmark. To determine a company’s eligibility within the Index, Bitwise has created two tiers that each potential constituent must fall within.
Tier 1 companies must account for at least 85% of the index’s total weighting. To be a tier-one company, a company must generate 75% of its revenue from serving crypto markets, and 75% of its net assets need to be accounted for by Bitcoin, Ethereum, or another liquid crypto asset.
Tier 2 companies can occupy the remaining 15% of the index (up to a maximum of 10 holdings). Tier 2 companies must have a market capitalisation of at least $10 billion. They must also have at least one significant business unit focused on the cryptocurrency ecosystem.
CRYP ETF Review: Performance
Eversince its inception, CRYPs performance has been nothing short of poor. Unfortunately for CRYP unitholders, its listing in November 2021 coincided with the peak of the 2021 crypto craze.
In 2022, major cryptocurrencies have experienced dramatic falls from their November 21’ peak. This is due to a variety of factors, including high levels of inflation, rising interest rates, and the War in Ukraine.
All of this has been bad news for stock markets around the world, particularly for growth focused ETFs like CRYP. CRYP is down 60% in 2022. In comparison, Vanguard’s ASX 300 ETF (ASX:VAS) is down approximately 6% in May 2022.
Why Is CRYP Down So Much?
During periods of rising interest rates, pre-profit high growth stocks typically fall more than the broader market. This is due to the fact that their cash flows are further into the future. When interest rates rise, cash flows are discounted back at higher rates, lowering their present value and causing prices to fall.
CRYP ETF Review: Price
CRYPs MER of 0.69%* is expensive by anyone’s standards. Especially since it costs nearly seven times as much as Vanguard’s Broad-Based S&P/ASX 300 Tracking ETF, ASX:VAS.
For every $10,000 invested in CRYP, BetaShares would charge $69 in fees. Comparatively, $10,000 invested in VAS would incur an annual expense of $10.
CRYP ETF Review: Risk
There are several notable risks associated with CRYP, specifically the possibility of tightened government regulation and the extreme volatility frequently demonstrated by cryptocurrency markets. I recommend reading Section 4 of the CRYP PDS for more information on the risks associated with Crypto and the CRYP ETF in particular.
CRYP ETF Review: Valuation
Because most companies within CRYP are pre-profit, traditional valuation metrics such as the price to earnings (P/E) ratio can‘t be used. Instead, the price to sales (P/S) ratio will be more suitable. P/S is a common metric used by early-stage growth investors to compare the valuation of pre-profit investments.
CRYP’s top ten holdings, which account for 61.5% of the ETF’s total weighting, have an average P/S of 5.9. This translates to investors paying $5.9 for every $1 of sales generated by CRYP’s top ten highest weighted companies.
To put this in context, that’s only about 17% higher than the average P/S of the top ten companies held within boring old VAS. That’s insane given that VAS is full of slower-growing, established businesses and CRYP is full of high-flying Crypto pioneers!
CRYP’s P/S compared to VAS doesn’t nesessarily make the ETF cheap (there are several other valuation techniques that can be applied), but it does put its 60% ‘drop in 2022 in perspective when compared to VAS’s 4.5% YTD fall. When P/S valuations have plummeted to ASX 300 levels, you know it’s crypto winter!
Is the BetaShares Crypto ETF a buy or a sell today?
Well, let’s see what two ASX expert investors think. Felicity Thomas of Shaw and Partners and Ben Nash of Pivot Wealth both recently appeared on a Livewire podcast to discuss their thoughts on this ASX ETF.
Here are some of Nash’s comments:
“This one’s a buy from me. I think crypto is a really interesting space, the blockchain technology has so many applications that I think we’re only just starting to see that. I think it will just grow and continue to grow. Also, the house always wins, so a lot of the companies that this particular ETF is investing in, they’re companies that are not necessarily tied to the price or value of cryptocurrency or other digital assets but instead that make money when they’re more and more popular. So I think that it’s a huge growth area. “
So that’s pretty unequivocal there. Fortunately, Thomas agreed that CRYP units were a good investment. Here are some of her additional comments:
“It’s another buy from me. It’s off 45% from its original initiation price. I really like what Ben said, in that it’s the picks and shovels of cryptocurrency in different companies, rather than direct cryptocurrency. You make money on the buyers and sales. So with ANZ and NAB and all the majors getting into cryptocurrency, I think it’s here to stay. “
So that’s how these two ASX experts currently see CRYP. While this ETF’s first few months of life haven’t been easy, who knows what the future of cryptocurrency might bring to the companies that enable this technology.
What do investors think about CRYP?
Chris Brycki, an ETF market analyst and founder of the robo-advisor Stockspot, stated that CRYP had displayed shocking volatility for an ASX-listed ETF, but that investors should expect it to behave more like volatile crypto markets.
“The ETF has followed the bitcoin price lower over the last couple of weeks, since the companies it invests into are leveraged to bitcoin and crypto prices,” he explained.
Nonetheless, he added that Stockspot data indicates that so-called thematic ETFs are often timed to take advantage of a market peak in their respective niche.
“They tend to launch … when retail interest is already at fever pitch,” Mr Brycki said. “Disappointment post-launch is common.”
surged by close to 90% from mid-July to mid-November (just after its inception), before falling by almost 25%.
Alex Vynokur, chief executive of BetaShares, CRYP’s provider, said:
“At all times, we have made it clear that CRYP is a high-risk investment and should be considered a small component of a diversified portfolio,” Mr Vynokur said. “As a general rule, investors should take a long-term view when making investment decisions about their portfolios; this is no different for exposure to digital assets.”
Product disclosure documents, seen by The Australian Financial Review, warned prospective investors that an allocation to the fund should be deemed “very high risk” and described the companies it holds as likely to be subject to a “very high level of return volatility”.
Mr. Vynokur went on to say that investing in crypto assets directly through an unregulated exchange had inherent consumer protection benefits. The comments came as local exchange MyCryptoWallet went into administration.
Final Thoughts on CRYP
When deciding whether or not to invest in CRYP, you must first determine whether cryptocurrency is an area in which you want to have some exposure, and if so, are you satisfied with the level — and type — of exposure that this ETF provides. This may not be the more risky, direct exposure that you’re looking for if you’re a more ‘bitcoin-bullish’ investor who lives and breathes cryptocurrency.
However, if you simply want to diversify your current portfolio with a lower level of exposure to the volatile (and, let’s face it, rollercoaster-like) world of cryptocurrency, this may be what you’re looking for.
Before investing in this fund, conduct additional research to determine whether its risk profile matches that of your portfolio. While it is not directly exposed to the rises and falls of popular crypto-coins, BetaShares classifies this ETF as’very high risk.’ Buyers, beware! Anyone who has previously invested in cryptocurrency will tell you that it is a wild ride.
FAQ
What does the CRYP ASX ETF invest in?
CRYP invests in cryptocurrency infrastructure companies such as cryptocurrency exchanges, miners, software, and other crypto-related businesses. First public crypto miner Hive Blockchain and exchange Coinbase Global were among its initial holdings.
What do investors use the CRYP ETF for?
The CRYP ETF does not directly invest in cryptocurrencies like Bitcoin or Ethereum; rather, it provides a “picks and shovels” exposure to the crypto “gold rush.” As a result, CRYP investors are not exposed to the highly volatile cryptocurrency prices, but rather to the companies and technology providers that enable cryptocurrencies.