Global X Launches Bitcoin ETF with Dynamic Risk Management Strategy

Global X launches a dynamic bitcoin ETF with a risk management strategy. The Global X Bitcoin Trend Strategy ETF aims to manage risk by using the CoinDesk Bitcoin Trend Indicator. Its dynamic allocation between bitcoin futures and Treasuries is adjusted weekly based on the indicator's signals.

How Global X's New Bitcoin ETF Manages Risk

Global X has launched a new crypto ETF in the US that aims to tame the volatility of bitcoin prices. The Global X Bitcoin Trend Strategy ETF (BTRN US) tracks an index that uses the CoinDesk Bitcoin Trend Indicator (BTI) to determine when to allocate to bitcoin futures or short-term US Treasuries.

What's the Secret Sauce?

The BTI is a daily signal that measures bitcoin's price momentum and direction. It compares bitcoin's short-term and longer-term moving averages to determine its signal. Based on the BTI, BTRN adjusts its allocation between bitcoin futures and short-term Treasuries every week.

How Does It Work?

When the BTI indicates a strong uptrend, BTRN allocates 100% to bitcoin futures. In a moderate uptrend, the allocation shifts to 75% bitcoin futures. In times of no discernible trend, the ETF splits its allocation evenly between bitcoin and US Treasuries. Conversely, during a moderate downtrend, the allocation reduces to 25% bitcoin. Lastly, in the event of a significant downtrend, the ETF allocates entirely to US Treasuries.

What's the Payoff?

BTRN aims to offer investors potential enhancements to risk-adjusted performance compared to direct investments in bitcoin or bitcoin futures. By dynamically adjusting its allocation based on market conditions, the fund seeks to alleviate the impact of drawdowns, which can be particularly severe in the crypto realm.

Historical Proof?

According to CoinDesk, backtesting over the past five years suggests that a hypothetical portfolio combining bitcoin and cash guided by the BTI would have reduced exposure to bitcoin during periods of market downturns while still participating in price uptrends.

What's the Catch?

While BTRN's expense ratio matches that of the largest bitcoin futures ETF, its price tag is higher than the lowest-cost spot bitcoin ETFs. However, BTRN's risk-managed approach may appeal to investors seeking a more balanced exposure to bitcoin.