The 11th and Final (As of Now) Spot Bitcoin ETF: Hashdex Bitcoin ETF (DEFI)

Bitcoin futures vs spot Bitcoin ETFs

Before January 11, 2024, investors looking to access Bitcoin through an exchange-traded product had two main options.

The first option was close-ended funds like the Grayscale Bitcoin Trust (

), which has since been converted into a spot Bitcoin ETF. Close-ended funds, unlike their open-ended counterparts, do not continuously issue new shares or redeem them.

Instead, they trade on the stock market, which can lead to the shares trading at premiums or discounts on the net asset value (NAV) of the underlying assets. This characteristic was particularly problematic for GBTC, as the high volatility of Bitcoin often led to significant disparities between the market price of the shares and the value of the underlying Bitcoin.

The open-ended structure of ETFs, with their continuous creation and redemption mechanism, generally prevents such premiums or discounts from persisting. However, at that time, ETFs were not permitted to directly hold spot Bitcoin, prompting asset managers like Hashdex to look for alternative solutions.

Consequently, asset managers opted for Bitcoin futures. These derivatives are contracts that agree to buy or sell Bitcoin at a future date at a predetermined price.

But while Bitcoin futures provide a good but not perfect correlation to the spot price of Bitcoin, they come with their own set of challenges. Mainly, managing futures contracts can be costly due to the expenses associated with rolling over contracts to avoid expiration. This can lead to higher expense ratios for investors in these funds.

All about DEFI ETF

Currently, DEFI tracks the Nasdaq Bitcoin Reference Price - Settlement index as its benchmark and holds 95% of its assets directly in spot Bitcoin.

What sets DEFI apart from other spot Bitcoin ETFs is its unique portfolio structure: it reserves 5% of its portfolio for Bitcoin futures.

This allocation to futures might be designed to provide additional liquidity or to enhance the fund’s ability to manage incoming and outgoing trades more effectively, offering a slight edge in flexibility and potential for capitalizing on short-term price movements in Bitcoin.

However, this innovative approach comes at a cost. DEFI carries a 0.90% expense ratio, which is on the higher end compared to its peers. It remains to be seen whether Hashdex will consider implementing a fee waiver to remain competitive, as some other fund managers have done.

As of the end of March 2024, DEFI has shown significant performance with a year-to-date increase of 59.78% in net asset value (NAV), positioning it well among its competitors.

But despite its strong performance, the fund’s assets under management (AUM) currently stand at a relatively small $12 million. Only time will tell if additional inflows to the spot Bitcoin ETFs may be directed towards DEFI.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.