Bitwise, a leading provider of crypto index funds and ETFs, announced today that it will donate 10% of its management fees from its recently launched Bitcoin Spot ETF (BITO) to support open-source Bitcoin development. This initiative, dubbed Bitwise for Bitcoin, aims to foster the long-term health and sustainability of the Bitcoin network and ecosystem.
According to Bitwise, the donation will be made on a quarterly basis, starting from the first quarter of 2024. The recipients of the donation will be selected by an advisory board composed of prominent Bitcoin experts, developers and advocates, such as Jameson Lopp, Elizabeth Stark, Matt Corallo and others. The advisory board will also oversee the allocation and distribution of the funds to ensure transparency and accountability.
Bitwise CEO Hunter Horsley said in a press release: “We are thrilled to launch Bitwise for Bitcoin and to support the amazing work being done by the open-source Bitcoin developers. Bitcoin is a public good that benefits millions of people around the world, and we believe it is our responsibility as a Bitcoin ETF provider to give back to the community that makes it possible.”
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Bitwise for Bitcoin is not the first initiative of its kind, as several other companies and organizations have also pledged to support open-source Bitcoin development in various ways. For example, Square Crypto, a division of Square dedicated to Bitcoin, has been funding several Bitcoin developers and projects since 2019. Similarly, Kraken, a major crypto exchange, has launched a grant program in 2020 to fund Bitcoin developers and researchers.
However, Bitwise claims that its initiative is unique in that it is directly tied to the performance of its Bitcoin ETF, which tracks the spot price of Bitcoin rather than the futures market. Bitwise argues that this approach offers investors a more efficient and cost-effective way to gain exposure to Bitcoin, while also creating a positive feedback loop between the growth of the ETF and the development of the network.
“We believe that by donating a portion of our management fees from our spot Bitcoin ETF, we can create a win-win situation for both our investors and the Bitcoin community. As more investors choose our ETF over other alternatives, we will be able to generate more funds for Bitcoin development, which in turn will enhance the security, scalability and innovation of the network, benefiting all Bitcoin users and holders,” Horsley explained.
However, investing in Bitcoin ETFs is not without risks. One of the main challenges is the discrepancy between the net asset value (NAV) of the ETF and the market price of its shares. NAV is the total value of the underlying assets divided by the number of shares outstanding. Ideally, the market price of the ETF should reflect its NAV, but in reality, there can be significant deviations due to supply and demand imbalances, market sentiment, liquidity issues, or arbitrage opportunities.
This means that investors may end up paying more or less than the actual value of the Bitcoin exposure they are getting. For example, if the market price of a Bitcoin ETF is higher than its NAV, it means that investors are paying a premium to buy the ETF. Conversely, if the market price is lower than the NAV, it means that investors are getting a discount.
How can savvy investors spot these price discrepancies and profit from them? One way is to compare the market price of the ETF with the spot price of Bitcoin on a reputable exchange, such as Coinbase or Kraken. If there is a significant difference between the two prices, it may indicate an opportunity to buy or sell the ETF accordingly.
For example, suppose that a Bitcoin ETF has a NAV of $50,000 per share, but its market price is $52,000 per share. This means that investors are paying a 4% premium to buy the ETF. If an investor expects that this premium will shrink over time, they may decide to sell the ETF and buy Bitcoin directly on an exchange instead. This way, they can lock in a higher return than holding the ETF.
On the other hand, suppose that another Bitcoin ETF has a NAV of $50,000 per share, but its market price is $48,000 per share. This means that investors are getting a 4% discount to buy the ETF. If an investor expects that this discount will narrow over time, they may decide to buy the ETF and sell Bitcoin directly on an exchange instead. This way, they can benefit from the appreciation of both the ETF and Bitcoin.
Of course, this strategy is not risk-free. There are many factors that can affect the price movements of both Bitcoin and Bitcoin ETFs, such as regulatory developments, technical issues, market sentiment, or unexpected events. Investors should always do their own research and due diligence before making any investment decisions.
One way to mitigate some of these risks is to donate some or all of your profits from trading Bitcoin ETFs to open-source Bitcoin development. By doing so, you can support the innovation and security of the underlying technology that powers both Bitcoin and Bitcoin ETFs. You can also contribute to the public good and help make Bitcoin more accessible, inclusive and resilient for everyone.
There are many organizations and projects that are dedicated to advancing open-source Bitcoin development, such as:
- The [Bitcoin Development Fund] (https://bitcoindevlist.com/), which supports individual developers who work on core protocol projects, libraries, applications and education.
- The Brink, which provides grants and fellowships to developers who work on improving Bitcoin’s scalability, privacy and usability.
- The [Human Rights Foundation] (https://hrf.org/), which funds developers who work on censorship-resistant and privacy-enhancing tools for Bitcoin users in oppressive regimes.
- The [MIT Digital Currency Initiative] (https://dci.mit.edu/), which conducts research and development on key technical challenges facing Bitcoin and other cryptocurrencies.
- The [Square Crypto] (https://squarecrypto.org/), which sponsors developers who work on making Bitcoin more user-friendly and interoperable.
By donating your profits from trading Bitcoin ETFs to open-source Bitcoin development, you can not only increase your returns but also make a positive impact on the future of Bitcoin and its ecosystem. You can also demonstrate your commitment to the values and principles that underpin Bitcoin, such as decentralization, transparency and sovereignty.
So next time you spot a profitable opportunity in the Bitcoin ETF market, why not consider sharing some of your gains with those who make it possible? You may be surprised by how rewarding it can be.
Bitwise for Bitcoin is expected to launch in early 2024, pending regulatory approval. The company said it will provide more details on the initiative and its progress on its website and social media channels.