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Yet another fund issuer wants to offer a spot bitcoin ETF — with a twist, in what appears to be an attempt to differentiate from a crowded field of would-be competitors.
The proposed fund could resonate with those aware of the environmental impact of bitcoin mining, segment observers told Blockworks, but offers exposure that has recently lacked investor interest and good returns.
Tidal Investments, in partnership with alternative investment manager 7RCC, seeks to launch a spot bitcoin ETF that would also hold carbon credit futures contracts, according to a Monday filing.
The proposed offering would develop a portfolio comprised of about 80% bitcoin and 20% carbon credit futures. It would track the Vinter Bitcoin Carbon Credits Index, which “seeks to provide exposure to bitcoin with an environmentally responsible approach through offsetting carbon emissions,” the disclosure notes.
7RCC did not immediately return a request for further comment.
The US Securities and Exchange Commission has never approved funds that hold bitcoin directly, though some industry watchers believe that could change next month.
Read more: Lucky 13? Where spot bitcoin ETF proposals stand ahead of judgment day
Critics of bitcoin mining have pointed to the electricity usage of such activities. Proponents have pointed to miners increasingly using renewable or otherwise stranded energy, as well as helping balance power grids.
Neena Mishra, director of ETF research at Zacks Investment Research, said blending carbon credit futures exposure with bitcoin reflects an attempt to appeal to younger, sustainability-conscious investors.
“Carbon credits do have low correlations with other asset classes and could add diversification benefits to a portfolio,” she told Blockworks. “While there are many ESG-focused products, including carbon credit futures ETFs, available to investors, these haven’t been popular lately and I don’t think this product will entice investors to jump in.”
The largest US carbon credit futures ETF — the KraneShares Global Carbon Strategy ETF (KRBN) — has $415 million assets under management. It has endured year-to-date net outflows of $134 million, according to ETF.com.
The recent lack of investor interest could be due to returns. KRBN, which launched in July 2020, was down 7.8% in 2023 as of 12 pm ET Tuesday, according to Google Finance data.
Read more: Why did Cambridge revise its bitcoin electricity consumption index?
The benchmark KRBN tracks — the IHS Markit’s Global Carbon Index — was up 131% since inception, as of Nov. 30, according to a KraneShares fact sheet. But the index’s performance, at that date, stood at roughly 1% in 2023 and at -8% in the trailing three months.
The latest carbon credit futures fund to come to market was the Global X Carbon Credits Strategy ETF (NTRL). It has failed to grow beyond $2 million in assets since its May launch.
Despite lackluster performance and investor interest in carbon credit futures funds of late, bitcoin has rallied.
The price of bitcoin (BTC) is up nearly 155% in 2023.
Anticipation for a spot bitcoin ETF is growing, as the SEC is set to rule on a proposal by Ark Invest and 21Shares — and potentially others — by Jan. 10. There are more than a dozen proposals in front of the regulator, some from traditional finance giants such as BlackRock, Fidelity and Invesco.
Expense ratio and marketing will play a critical role in determining winners and losers in the space, said Nate Geraci, president of The ETF Store. Several spot bitcoin ETF issuers, if such funds launch, may not last even a year, he added.
Read more: New Bitwise ad reflects expected bitcoin ETF marketing blitz
One way to potentially sidestep the fierce competition is to differentiate in some other way, Geraci said.
“Rightly or wrongly, there are meaningful concerns around the environmental impact of bitcoin mining,” he told Blockworks. “It’s possible an ‘environmentally conscious’ spot bitcoin ETF could appeal to a certain type of investor, which might allow it to carve out a unique niche in the overall category.”
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