When it comes to crypto exchange-traded funds (ETFs), investors now have plenty of options. The most popular ETFs are those that focus on a single cryptocurrency, such as Bitcoin (BTC +0.90%) and Ethereum (ETH 0.09%).
However, a growing number of high-upside crypto ETFs offer much broader diversification. For example, consider the Bitwise Crypto Industry Innovators ETF (BITQ +4.50%), which launched back in 2021. It offers exposure to companies leading the new crypto economy, but it does not invest directly in cryptocurrencies themselves.
Can any asset outperform Bitcoin?
There's a good reason the Bitwise Crypto Industry Innovators ETF does not get the attention it deserves. Simply put, it's almost impossible to out-Bitcoin Bitcoin over an extended period.
Put another way, the returns for Bitcoin over the past five years have been so high that no single company -- with the possible exception of Bitcoin treasury company Strategy (MSTR +1.68%) -- can even come close.
It's impossible not to be impressed by the following chart. Over the past five years, Bitcoin is up 154%. In contrast, the Bitwise ETF has barely managed to tread water.
Bitcoin / U.S. dollar chart by TradingView
Since it's almost impossible to out-Bitcoin Bitcoin over a long enough period, investors have sought out innovative ways to get exposure to it.
Until recently, that meant seeking out Bitcoin proxy stocks such as Strategy. But after the launch of the new spot Bitcoin ETFs in January 2024, it could also mean plowing money into exchange-traded funds. Today, over $100 billion has flowed into these Bitcoin ETFs, while only $450 million has flowed into the Bitwise Crypto Industry Innovators ETF.
Should you invest in crypto or in the crypto economy?
However, high upside potential is just part of the investment equation. Diversification is another key part. And that's where the Bitwise Crypto Industry Innovators ETFs really shines.
It currently holds positions in 29 different companies, with no company accounting for more than 9% of the total portfolio. Top holdings include Strategy, Coinbase Global (COIN 2.58%), Circle Internet Group (CRCL 4.47%), and a handful of Bitcoin mining companies.
Image source: Getty Images.
Arguably, these companies give investors broader, more diversified exposure to the crypto economy than investing in Bitcoin itself. Strategy, for example, is the top Bitcoin treasury company in the world. Coinbase Global is the largest U.S.-based cryptocurrency exchange. Circle Internet Group is the second-largest stablecoin issuer in the world. And Bitcoin mining companies are increasingly moving some of their computing capacity to handle tasks like high-performance computing (HPC) and artificial intelligence (AI).
Crypto ETFs can outperform Bitcoin over the short term
While Bitcoin has soundly defeated the Bitwise ETF over a five-year period, the Bitwise ETF is actually up 12% year to date and 27% over the past 12 months. Both are better than Bitcoin, which has crumbled in value by 30% after hitting a new all-time high in October.
NYSEMKT: BITQ
Key Data Points
So perhaps investors shouldn't be so quick to overlook a crypto ETF that offers plenty of upside potential and much greater diversification than investing in a single cryptocurrency. If you are looking to diversify your crypto portfolio, the Bitwise Crypto Industry Innovators ETF could be worth a closer look.
