New Calamos ETF Promises 100% Downside Protection Against Bitcoin (BTC) Price Fluctuations
A new exchange-traded fund (ETF) by 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, provides investors with 100% downside protection while offering 10% to 11.5% upside potential over a year, according to a press release. A Calamos representative told CoinDesk that as of 12:11 pm ET, the ETF had traded approximately 635,714 shares.
The other two funds, CBXJ and CBTJ, which are scheduled to launch on Feb. 4, will provide 90% and 80% protection, respectively, with cap increases 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 cap is set annually, and the period is reset each year with new terms.
In other words, if an investor buys $100 worth of shares in the ETF, Calamos will put a percentage of it in Treasury bonds that will grow back to $100 within a year, ensuring that regardless of where the price is of bitcoins. time, the investor has the full $100.
The rest is used to buy options linked to the price of bitcoin, allowing exposure to the cryptocurrency while not directly owning it.
This safety blanket is not cheap, however. The management fee for ETFs is set at 0.69%, higher than other ETFs that invest in bitcoin. The average fee for US-based ETFs is around 0.51%, making these ETFs relatively expensive for investors. However, the higher price may be worth paying for investors looking for safety from the volatile market of digital assets.
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 will compete with MicroStrategy’s (MSTR) convertible bonds, as both offer some downside protection. However, according to CoinDesk analyst James VanStraten, that is not the case. MSTR notes differ from the Calamos ETF in that they have no upside potential limit. If certain criteria are met, those will be converted into equities, resulting in potentially higher risk but more upside.
ETFs that protect against the downside have, therefore, become a popular innovation of issuers in recent months, leading up to the crypto-friendly inauguration of President Donald Trump. This has prompted hopes that many of the ETF applications will receive approval under the new Securities and Exchange Commission.
Crypto asset manager Bitwise revamped three of its futures-based crypto ETFs in October to include exposure to Treasuries to protect against crypto price declines. The funds will, therefore, rotate between investing in crypto and Treasuries depending on market signals.
