Bitcoin ETFs investors are careful

New ETFs suggest that investors are excessively cautious, even in their approach to purchasing bitcoin. Investors exhibiting irrational exuberance, particularly those who suffer significant losses, tend to attract considerable scrutiny. However, there exists an alternative approach to mismanaging finances: adopting an excessively cautious stance that results in minimal returns.
The Calamos Bitcoin Structured Alt Protection ETF commenced trading under the “CBOJ” ticker last Wednesday. The fund employs a strategy that blends secure investments with options on various bitcoin instruments, ensuring that initial investors are shielded from losses over the coming year, even while engaging with one of the most speculative assets available. Conversely, this also constrains the potential maximum returns achievable during this timeframe to 11.65%. Since 2016, bitcoin has experienced 23 instances of surpassing that level in a single day. The average annual volatility stands at 86%.
Calamos presents this as a benefit, highlighting the significant likelihood of reaching peak values. However, there exists a comparable risk that the cryptocurrency may decline and fail to approach the valuations discussed in a notable 2011 study by Brian Henderson and Neil Pearson, which concluded that incorporating structured products into portfolios does not yield value when considering the substantial fees imposed by issuing banks. Complexity poses challenges for the less experienced: For example, investors purchasing structured ETFs post-launch should be aware that the terms fluctuate in accordance with market prices. The CBOJ’s downside protection has shifted from 100% to 100.03%, reflecting the recent decline in bitcoin over the past week.
What accounts for the allure of the assurance against capital loss? Psychologists Daniel Kahneman and Amos Tversky conducted research that revealed a notable tendency among individuals to forgo betting on a coin flip, even when presented with a 50% probability of winning $150 against a 50% probability of losing $100. The psychological impact of actual losses is disproportionately greater than the regret associated with missed opportunities for larger gains. It is certainly a positive development that structured products are progressively transitioning into more secure, liquid ETFs with fees under 1%, in contrast to the approximately 3% levied by banks. It remains to be seen whether this development will render certain buffer ETFs a valuable addition to the arsenal of seasoned investors.
Moreover, additional justifications exist for Calamos’s bitcoin offerings. Tax efficiency is a critical consideration. Furthermore, CBOJ is set to be the inaugural offering in a trio of ETFs, one of which features a profile akin to cryptocurrency—limiting losses to 20% while allowing for a maximum return of approximately 50%. Importantly, these vehicles serve as a mechanism for financial advisers to introduce bitcoin to the hesitant, or to enable newly minted crypto millionaires to diversify their portfolios, according to Matt Kaufman, head of ETFs at Calamos. Most investors, however, would be wise to adhere to traditional portfolio theory by diversifying their holdings with cash and standard market trackers. Presenting all the risks transparently, only to subsequently dismiss them with the same hand, represents a rather peculiar strategy at best.