A new exchange-traded fund (ETF) from global investment management firm Calamos that promises to protect investors from bitcoin price volatility hit the market on Wednesday.
CBOJ, the first of three ETFs, offers investors 100% downside protection while also offering 10% to 11.5% upside potential over a one-year period, according to a statement from press. A Calamos representative told CoinDesk that as of 12:11 p.m. ET, the ETF was trading approximately 635,714 shares.
The other two funds, CBXJ and CBTJ, which will launch on February 4, will provide 90% and 80% protection respectively, with a cap of 28% to 30% and 50% to 55%.
Downside protection is achieved through investments in US Treasuries and options on Bitcoin index derivatives. The upside limit is set annually and the period resets each year with new terms.
In simple terms, if an investor bought $100 worth of ETF shares, Calamos would put a percentage of that into Treasury bonds that would grow back to $100 over a one-year period, ensuring that regardless of where the price of bitcoin is, At that point, the investor has the entire $100.
The remainder is used to purchase options tied to the price of bitcoin, allowing exposure to the cryptocurrency without directly owning it.
However, this security blanket doesn’t come cheap. The ETF management fee is set at 0.69%, higher than other ETFs that invest in bitcoin. The average fee for US-based ETFs is about 0.51%, making these ETFs a bit expensive for investors. However, the higher price could be worth paying for investors seeking safety in the volatile digital asset market.
While “bitcoin maxis” and other investors believe in bitcoin’s long-term rise in value, many, especially traditional institutional investors, worry about bitcoin’s volatility and periods of complete free fall.
One question that may arise from the mechanics of the ETF is whether it would compete with MicroStrategy Convertible Bonds (MSTR), as both offer some downside protections. However, according to CoinDesk analyst James VanStraten, that is not the case. MSTR notes differ from the Calamos ETF in that they do not have a cap on upside potential. If certain criteria are met, they are converted into stocks, resulting in potentially higher risk but more upside.
Downside-protecting ETFs have therefore become a popular innovation among issuers in recent months, ahead of the inauguration of cryptocurrency-friendly President Donald Trump. This has raised hopes that many of those ETF applications will receive approval from the new Securities and Exchange Commission.
Crypto asset manager Bitwise revamped three of its futures-based crypto ETFs in October to include exposure to Treasury bonds to protect against cryptocurrency price declines. Therefore, the funds will rotate between investing in cryptocurrencies and Treasuries depending on market signals.
