Summary With Trump's return to the White House, digital assets have a far more favorable setup compared to under the Biden administration. Investors can consider buying the Bitwise 10 Crypto Index Fund at a discount to Net Asset Value for diversified exposure. The article reviews fund details, Trump's pro-crypto history, and provides an updated "fair value" calculation for BITW shares. With the 2024 general election in the United States in the rearview mirror, markets are now digesting a return to the White House for former-President and current President-elect Donald Trump. There are a variety of ways investors can express the 'Trump Trade.' I've explored one such way the market seems to be playing the former President's re-election recently via Trump Media & Technology Group ( DJT ). A Donald Trump-owned media stock is perhaps an interesting angle. But from where I sit, the best way to trade the end of the Biden administration is to buy industries that were previously out of favor provided a Trump administration can realistically be viewed as more friendly. That is absolutely the setup for the domestic cryptocurrency industry. The question then is how does one play that idea? Investors have no shortage of options. For instance, US-based crypto-businesses are perhaps more likely to thrive under Trump than under Biden and there are several US cryptocurrency businesses that are publicly traded. Investors could also buy the coins/tokens themselves if they're comfortable with digital assets and understand the space. Short of that, one could just buy the Bitwise 10 Crypto Index Fund ( OTC:BITW ) at a discount to Net Asset Value. I've covered this fund a couple times in the past. Most recently in April when I provided readers with a rundown of on-chain data for each of the ten holdings held in fund shares. In this update, we'll briefly review the fund details, assess whether or not cryptocurrencies would truly benefit from a Trump presidency, and get into my adjusted "fair value" calculation for BITW shares. Trump's History With Crypto Cryptocurrencies have become somewhat of a polarizing issue in the political landscape in recent years. Pro-crypto advocacy group StandWithCrypto has tracked official statements from notable politicians and assigned grades by individual candidate. Politician Scores (StandWithCrypto.org) The organization has given current President Joe Biden a "D" grade while President-Elect Donald Trump gets an "A." During this campaign season, Trump took several steps to solidify his standing as the pro-digital asset POTUS candidate including speaking at the Bitcoin 2024 conference in Nashville, using Bitcoin to pay for food at a bar in NYC, and launching a token affiliated with a crypto-business. While some have viewed this as pandering, the reality is Donald Trump has been friendly to blockchain technology for several years. Most notably through his non-fungible token products: Trump Digital Trading Card #10004 (OpenSea.io) As far back as 2022, Trump's team has used Polygon ( MATIC-USD )/(POL-USD) to distribute the former President's NFT collection "Trump Digital Trading Cards." These kinds of products, while presumably viewed as silly by most, have helped generate a somewhat large crypto balance attributed to Trump. Arkham Intelligence has Donald Trump's cryptocurrency wallet holdings at $6.1 million - with over $2 million of it held in Ethereum. The point is, Trump's 2024 election win is not a bad thing for the digital asset space if his recent and prior actions are any indication. Thus, if we accept that 'bullish crypto' is a viable way to express a Trump win in the market, BITW is not a bad way to play the 'Trump Trade,' in my view. Fund Details For the sake of comparison, I'm showing BITW fund details versus the Grayscale Digital Large Cap Fund ( OTCQX:GDLC ). While each of these funds aim to achieve the similar goal of being a more diversified cryptocurrency investment product, I've held the view that BITW is the better product at achieving that objective due to the fact that it holds 10 assets rather than just 5: Details BITW GDLC Expense Ratio 2.5% 2.5% AUM $989 million $521 million Holdings in Fund 10 5 Bitcoin ( BTC-USD ) Weight 75.1% 76.8% Ethereum ( ETH-USD ) Weight 16.5% 16.8% Sources: Bitwise, Grayscale, as of 11/5/24 Each fund has a large combined weighting to both Bitcoin and Ethereum. Where BITW does slightly better is in spreading out the remaining AUM over 8 additional assets rather than just 3. As far as fund fees go, both are identical at 2.5% - which I view as far too high for funds that don't generate yields from the Proof-of-Stake assets. Valuation Adjustment Unlike ETFs, BITW and GDLC are both closed-end funds that trade at large discounts to the value of the underlying shares. In past work covering GDLC, I've made the case that GDLC is so bad at being diversified that it's actually a compelling trade as just a discounted Bitcoin proxy. The same is true for BITW. Though given the fact that Ethereum now also has spot ETFs in the United States, I think it's fair to keep that value at par rather than writing it down to zero. Like Grayscale, Bitwise has spot ETF offerings for both ETH and BTC that trade at NAV. So what we have then with BITW is a fund that is offered by a company that has additional products trading at NAV with the same custodian. Asset Asset price Weighting $ Val/Share Adjusted Val Bitcoin $69,312 75.1% $35.43 $35.43 Ethereum $2,419 16.5% $7.78 $7.78 Solana ( SOL-USD ) $165.01 4.2% $1.98 $0.00 Ripple ( XRP-USD ) $0.511 1.6% $0.75 $0.00 Cardano ( ADA-USD ) $0.332 0.7% $0.33 $0.00 Avalanche ( AVAX-USD ) $23.85 0.5% $0.24 $0.00 Bitcoin Cash ( BCH-USD ) $338.94 0.4% $0.19 $0.00 Chainlink ( LINK-USD ) $10.73 0.4% $0.19 $0.00 Polkadot ( DOT-USD ) $3.87 0.3% $0.14 $0.00 Uniswap ( UNI-USD ) $7.07 0.3% $0.14 $0.00 Share Value $47.18 $43.22 Source: Bitwise, author's calculations based on 11/5/24 closing prices In the table above, I'm writing down the value of everything in the fund to zero with the exception of BTC and ETH to create what I've called an "adjusted fair value" for BITW shares. Thus, if we're buying BITW purely for the BTC and ETH, BITW shares have a fair value of $43.22. Given the November 5th closing price of $37.50, BITW shares have a real discount of 20.5% and an adjusted discount of 13.2%. This is admittedly an entirely subjective exercise and fair value is whatever the market is willing to pay. BITW, NAV Rate History (Bitwise) But we've seen BITW and other products like it trade at premiums to NAV rather than discounts in the past. In the 5-year chart above, the blue line is the NAV and the green line is the market value of the shares. To be clear, I'm not suggesting BITW will or even should trade at a premium to NAV. I actually think that a small discount is totally justifiable given the management fee. But I believe a simple shift in market sentiment can dramatically change how these types of products change. If/when digital assets start to run in response to a friendly US regulatory environment, there's no reason BITW's NAV rate discount can't close to a smaller figure. I suspect it will do just that. Risks Digital assets are inherently riskier than traditional financial assets due to a multitude of factors; They're typically not backed by physical assets or businesses Many of them lack supply caps and must be staked to provide a real rate of return when adjusted for token emissions The barrier to market entry is virtually non-existent, which can lead to a higher likelihood of scams or fraud Price volatility is generally more intense than what would be expected from stocks or commodities This is not an exhaustive list. As for BITF specifically, the fund is closed end and can trade at a large discount to Net Asset Value without a mechanism for shareholders to redeem the assets in the fund. Just because the fund trades at a 20% discount to NAV currently, that discount rate can get larger. Thus, there are scenarios where the digital assets held by the fund can appreciate in value even while the fund shares themselves decline in price. Beyond that, the 2.5% expense ratio is high in my opinion. Closing Summary Despite the numerous risks to both cryptocurrencies as an asset class and BITW as a fund, I like buying things that I think are undervalued. In my opinion, BITW is a fundamentally more appealing product than its closest peer GDLC. However, that's not even really the best reason to buy shares of BITW. Since BITW is also so heavily weighted to Bitcoin and Ethereum, the 20% discount to NAV represents an opportunity to buy BTC and ETH at a discount to 'fair value' even if we write down the remaining 8% altcoin allocation to $0. In my view, a Trump administration is a positive development for the domestic cryptocurrency industry. While there is likely a US-based crypto-business angle that can be explored by investors, the most straightforward way to express the 'Trump Trade' is through a basket of cryptos. I think doing so at a discount via BITW is a solid play.
