Even When Its Price Is Pressured, Bitcoin Still Has a Role to Play

This downdraft has many wondering where the digital currency will go from here. Is this dip just a temporary bout of negativity, or is a significant price crash in the cards?

This price speculation is certainly understandable. However, it’s essential for advisors and investors to remember that the cryptocurrency still addresses many crucial portfolio applications, and many of the corresponding benefits can be realized regardless of whether bitcoin’s price is experiencing a bout of volatility or not.

To start, exposure to the largest cryptocurrency can significantly amplify portfolio diversification. Bitcoin traditionally has a lower correlation to the equity and fixed income markets, which means it tends to perform differently when compared to other investment strategies.

Furthermore, bitcoin has long been touted for its potential as an inflation hedge. Even if the cryptocurrency’s price is underperforming, an allocation to it can help prepare a portfolio for rising inflation down the line.  Some argue that bitcoin’s capped supply of 21 million coins makes it scarce by design, helping it resist devaluation; however, this remains a topic of debate.

These are just a few examples, but there are various other reasons to hold the digital currency in a portfolio. The ETF wrapper offers a highly accessible means for advisors and their clients to capitalize on bitcoin’s appreciation potential while hedging against its price volatility.

At a high level, we are all aware that ETFs can offer liquidity, tax efficiency, and lower expense ratios.

The Calamos Laddered Bitcoin 90 Series Structured Alt Protection ETF (CBXL) takes it to the next level, blending bitcoin upside with risk management. CBXL’s strategy encompasses a laddered portfolio of four different Calamos Protected Bitcoin ETFs.

Each of these underlying ETFs is positioned to provide 90% downside protection over a one-year outcome period (before fees and expenses). This can help investors and advisors hedge their bets against the ongoing risk factors facing the bitcoin market.

Meanwhile, the underlying fund’s still offer significant upside exposure to the cryptocurrency with initial caps above 20%.

As a whole, this strategy offers a potent application for investors seeking to maintain bitcoin in their portfolios but who are cautious about the cryptocurrency’s future price direction. Regardless of whether or not bitcoin does well, CBXL can provide return opportunities, protection of principal, and the core portfolio opportunities that come with bitcoin investments.

As noted previously, bitcoin correlation to traditional asset classes is inherently low given the return distribution pattern and drivers of growth. Even though Protected Bitcoin Strategies cut off the tails, they maintain a consistently low correlation with equities, fixed income, and gold. This phenomenon is particularly valuable for portfolio construction, as it means the Protected Bitcoin Strategies provided true diversification benefits despite their managed downside risk.

For more news, information, and analysis, visit the Crypto Content Hub.

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FUND-OF-FUNDS RISK. Shareholders of the Fund will experience investment returns that are different than the investment returns provided by an Underlying ETF. The Fund does not itself pursue a defined outcome strategy, nor does the Fund itself provide downside protection against SPY losses. Because the Fund will typically not purchase an Underlying ETF on the first day of a Target Outcome Period, it is not likely that the stated outcome of the Underlying ETF will be realized by the Fund. The Fund will be continuously exposed to the investment profiles of each of the Underlying ETFs during their respective Target Outcome Periods. The Fund, with its aggregate exposure to each of the Underlying ETFs, may have investment returns that are inferior to that of any single Underlying ETF or group of Underlying ETFs over any given time period. In between the semi-annual rebalance period of the Index, because the Fund is not equally weighted on a continuous basis, the Fund may be exposed to one or more Underlying ETFs disproportionately when compared to other Underlying ETFs. In such circumstances, the Fund will be subject to the over-weighted performance of such Underlying ETF. As a shareholder in other ETFs, the Fund bears its proportionate share of each ETF’s expenses, subjecting Fund shareholders to duplicative expenses.  

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