A Not So Passive Crypto-Fund


Bitwise Asset Management’s new crypto-fund steals much from Wall Street, unfortunately. After analogizing crypto-currencies to equities, Bitwise introduced to accredited investors a passive product called the Bitwise HOLD 10 Private Index Fund. And like traditional hedge funds, the the HOLD 10 could be tax inefficient for investors.

As the name implies, the Hold 10 will hold ten crypto-currencies.  Bitcoin and ethereum make up the majority or approximately 75% of the index. Eight remaining currencies, including Litecoin and Ripple, make up the rest of the index. The Private Index supposedly makes crypto-currencies investing as simple as using an equity index, such as the S & P 500, for investing in stocks.

Hold 10 investors will only be charged fees of 2%-3% and not the 20% of profits associated with traditional hedge funds. Hedge funds use leverage to be either long and short assets, such as stocks or bonds. Using active management, hedge fund managers trade often to make outsize gains for investors and ultimately for themselves. The active trading also produces lots of taxable income for hedge fund investors.

The Private Index of ten crypto-currencies is rebalanced monthly. As such, each month some currencies would be sold and others purchased to keep the index inline. In addition, the rebalancing may occur more often than not given the volatility and price swings in crypto-currencies.

So while the Hold 10 may be a passive investment strategy, it could have the same trading activity as hedge funds or other equity investments. Per its website, the Hold 10 fund is structured as a pass-through entity, like many hedge funds. That means Hold 10 investors own a slice of the fund’s assets and a slice of any potential taxable gains from rebalancing.


This post is for educational purposes only and should not be used for investment purposes.