Value Is Tanking: Crypto ETFs Could Lose 50% Like Bitcoin

Bitcoin climbed 14.5% to US$43,193.23 to end February 2022 on a positive note. The surge isn’t spectacular, but it could be the start of recovery from the crypto winter. While the year-to-date loss has dwindled to 6.7%, the price is 36.1% lower than its all-time high on November 8, 2021.

Some crypto analysts remain wary about the geopolitical tensions, particularly the impact of the Russia-Ukraine war on risky assets. The month-end spike could be temporary, since Bitcoin is still way off its peak. They fear additional volatility over the short term.

Investors in crypto-focused exchange-traded funds (ETFs) should be cautious. If the values of Bitcoin and crypto peers like Ethereum or Solana tank again due to extreme volatility, crypto ETFs will experience the same. It would be wise to stay clear of crypto stocks and other crypto-related investments for now.

Crypto market in the limelight

The crypto market is in the limelight since the siege on Ukraine began. Mykhailo Fedorov, vice prime minister of Ukraine and minister of the country’s digital transformation, tweeted on February 27, 2022, “I’m asking all major crypto exchanges to block addresses of Russian users.”

Fedorov added, “It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.” Industry observers noted the decline in Bitcoin’s trading volume across major exchanges after February 24, 2022.

Interestingly, cryptocurrency prices are rising after Russia’s ruble fell to record low following new sanctions from the West. Bitcoin and Ethereum jumped 13% and 10%, respectively, on March 1, 2022. According to some analysts, virtual currencies might gain more traction if conventional assets reel from heightened volatility due to the war.

Oslo-based cryptocurrency research firm, Arcane Research, reports that the trading volume between ruble and cryptocurrencies has spiked in recent days. It happened on Binance, one of the world’s biggest cryptocurrency exchanges. However, stable coins are attracting more attention, because they are pegged to the U.S. dollar.

ETF performance

Purpose Bitcoin ETF (TSX: BTCC.B) is the first physically settled Bitcoin ETF in the world. As of month-end February 2022, the number of Bitcoins held in cold storage is 3,255.328. The fund’s asset under management (AUM) is worth $1.7 billion. BTCC rose to its highest on the same day BTC hit its all-time high. However, the price is down 38.3% to $8.54 as of this writing.

Fidelity Advantage Bitcoin ETF (TSX: FBTC) targets institutional investors. According to the fund’s asset manager, it’s the mutual fund version “ETF fund” with a low correlation to stocks, bonds, and cash. The ETF is new and made its market debut on December 2, 2021. At $18.12 per share, the ETF has lost 27.3% since its first trading day.

Purpose Ether ETF (TSX: ETHH) has the same fund manager as BTCC. The features are also the same, although you invest in physically settled Ether. Currently, the AUM is $462.4 million consisting of 128,897.7 coins. Like BTCC and FBTC, this Ethereum ETF underperforms (-24.2% year to date). The price is down to $12.50 from a peak of $21.23 on November 9, 2021.

Volatile like Bitcoin

Crypto ETFs are safer because they trade on the TSX. Unfortunately, they mirror Bitcoin’s movement. If the top crypto’s value drops 50%, the ETFs could tank by the same percentage.