ETFs
It’s Hedge Fund Disclosure Time: What Bitcoiners Should Know
Unlike the elusive Satoshi Nakamoto, hedge funds cannot hide their Bitcoin ETF holdings. (Photo by Janos Kummer/Getty Images)
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Welcome to your first 13F season, bitcoiners!
From bitcoin
Bitcoin
Spot ETFs launched on January 11th, this is the first quarter where we will see which investment managers have been put in orange (i.e. Bitcoinese for people who have wholeheartedly adopted the asset digital). But hold your applause: Just because Blackrock’s iShares Bitcoin Trust, Fidelity’s Wise Origin Bitcoin Fund, or any of the 11 other spot Bitcoin ETFs appear in a filing doesn’t necessarily mean it’s grounds for celebration.
We’ll see why, but first here are the basics you need to know about 13Fs.
A 13F is a quarterly filing required by the Securities and Exchange Commission (SEC) for institutional investment managers with at least $100 million in eligible assets. If you’re big enough to play in this league, you need to tell the world what US-traded stocks, options, and now Bitcoin ETFs you own as of the last day of the quarter.
But remember, this is just a snapshot. Something bought or sold in the middle of the quarter and held until the end of the period? Not shown. Only securities as they were when the bell rang on the last day of the period should be included in the filing.
13F filings are submitted by different types of investment managers, including hedge funds, mutual funds, index funds, and large companies like Berkshire Hathaway.
Berkshire Hathaway
. Hedge funds are known for their aggressive strategies and flexibility, aiming for high returns by taking on more risk. Mutual funds pool resources from many investors to purchase a large portfolio of stocks or bonds. Index funds track specific market barometers, such as the S&P 500, providing stable and predictable market exposure. Giant companies like Berkshire Hathaway, with large internal investment portfolios, are also joining the fray. Their investment strategies range from discerning stock pickers to broad diversifiers.
But here’s the important point: not all 13F filings are created equal. Not all of them demonstrate true investment conviction.
Take, for example, market makers and high-frequency trading firms like Citadel Securities, Susquehanna International Group (SIG), Renaissance Technologies, and Virtu Financial.
Virtu Financial
…they must all also file a complaint. Unlike, say, Berkshire Hathaway, where a disclosed position suggests a bullish outlook, Citadels and SIGs around the world typically engage in rapid trading to take advantage of tiny differences between buying and selling prices. Their holdings often reflect high-volume trading rather than a long-term belief in the assets. So when you look at their 13Fs, take them with a grain of salt: they’re more about capturing a slice of trading volume than signaling deep love for a particular ETF or stock.
Then there are the banks. Expect to see them list Bitcoin ETFs in their filings as well, but don’t get carried away. Many banks act as market makers and some, like JPMorgan, might even be authorized participants (APs) for the ETFs themselves. The role of an authorized participant is to align the price of an ETF with its underlying assets by creating or redeeming shares as needed. Their involvement could therefore relate more to market mechanisms than to a bet on Bitcoin.
However, some banking information may include shares held by banks’ private clients, which is a bullish signal. However, this does not mean that banks themselves are taking a position on Bitcoin or most other securities they might put on file, as they are largely prevented from doing so under regulations such as the Volcker Rule.
So far, the largest position in the BlackRock or Fidelity Bitcoin ETFs disclosed by an actively managed fund was a $40 million position by Yong Rong Asset Management, a Hong Kong-based alternative investment fund. The largest position as a percentage of a fund’s stock portfolio, according to FactSet, was taken by Context Capital Management. The LaJolla, Calif.-based fund revealed that 50% of its stock position was allocated to the BlackRock ETF.
The deadline to submit an application for the first quarter is May 15.