BITWISE CRYPTO INNOVATORS ETF
Ticker: TBD
Exchange: TBD
Expense ratio: TBD
Original filing date: February 8, 2021
Effective date: April 26, 2021
Listing Date: TBD
CUSIP: TBD
Active: No
Index: Bitwise Crypto Innovators Index
1. Companies that derive at least 75% of revenues from crypto currency industry
2. Companies deemed crypto innovators by the index committee
*See below extract from prospectus "Principal Investment Strategies" for definitions of both crypto currency industry and crypto innovators.
Constituents: Not entirely clear pending index methodology publication, but universe appears to be all-world as index is stated to include China A shares. "Crypto Innovators" portion of index will consist only of large-cap companies, while crypto industry companies must be at least $100M in market cap.
Adviser: Exchange Traded Concepts, LLC
Prospectus is here.
Principal Investment Strategies
The Fund will normally invest at least 80% of its total assets in securities of the Index or in depositary receipts representing securities of the Index. The Index was designed by Bitwise Index Services, LLC (the “Index Sponsor”) to measure the performance of companies considered by the Index Sponsor to be Crypto Innovators, as defined below. Under normal circumstances, the Fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities of Crypto Innovators.
The term “Crypto Innovators” generally refers to companies that service and transact in the segment of the economy dealing with crypto assets and distributed ledger technology (e.g., blockchain technology). Crypto assets are digital representations of value or rights that are capable of being possessed by a party, secured cryptographically, and commonly associated with blockchain technology. A distributed ledger is a shared electronic database where information is recorded and stored across multiple computers. A blockchain is the type of distributed ledger most commonly associated with crypto assets, and involves the use of cryptography and economic incentives to establish consensus and security around the transaction ledger. Blockchain derives its name from the way participants verify and store transaction data in “blocks,” each of which is cryptographically linked to the prior block as a time-stamped chain.
Crypto Innovators include parties that operate crypto asset trading platforms, custodians and wallets; financial services providers leveraging crypto assets and/or blockchain technology, or other financial institutions principally servicing clientele involved in the crypto ecosystem; distributed ledger infrastructure and transaction validation services (e.g., crypto asset “miners”); and technology hardware, software and solutions providers to participants of the crypto ecosystem. These companies also include issuers that own a material amount of crypto assets or otherwise generate revenues relating to crypto asset or distributed ledger technology.
The Index is constructed using a rules-based screening and index committee selection methodology (the “Methodology”) that segments Index exposure to Crypto Innovators in two market segments:
1) 70% of the Index exposure to companies that derive more than 75% of their revenue directly from servicing or transacting in the crypto ecosystem or have more than 75% of their net assets accounted for by direct crypto asset holdings. These category one Crypto Innovators must have a minimum market capitalization of $100 million.
2) 30% of the Index exposure to large-capitalization companies that are identified as Crypto Innovators by the index committee. The index committee considers a company to be a Crypto Innovator to the extent that it has a “dedicated business initiative” explicitly focused on the crypto ecosystem that is reported on in at least one of the company’s official quarterly or annual filings from the past 12 months, including initiatives involving the purchase, sale, development, custody, mining, or trading, transacting in, processing transactions with, or holding of crypto assets or derivative instruments that track the value of crypto assets. These category two Crypto Innovators must have a minimum market capitalization of $10 billion.
The Index begins with an initial universe of companies that are exchange listed or publicly quoted issuers. Companies are next screened for minimum market capitalization based on the category standards set forth above. Companies are next screened for minimum average daily value in transaction volume and minimum free float market capitalization (shares publicly available for purchase on the secondary market). Shares of common stock, units, tracking stocks, American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) are eligible for inclusion in the Index. Where securities of eligible companies have multiple share classes listed on major exchanges, the most liquid share class as determined by the average daily traded value for the sixth month period preceding the date companies are screened for inclusion. The Index may include China A-shares, which are shares of mainland China-based companies that trade on the Chinese stock exchanges.
From this initial universe, companies are screened according to the Methodology for their involvement in the crypto ecosystem based upon the two categories of Crypto Innovators. Within the 70% exposure to category one Crypto Innovators, allocation is weighted by market capitalization. Within the 30% exposure to category two Crypto Innovators, the allocation is equally weighted. For all Crypto Innovators, the exposure to the securities of any single issuer is limited to 10%. The Index is rebalanced on a quarterly basis, at 4 p.m. Eastern time on the last business day of the calendar quarter. As of [_____], 2021, the Index comprised [_____] component securities with an average market capitalization of $[_____].
The Fund will not invest in crypto assets directly or through the use of derivatives. The Fund also will not invest in initial coin offerings. The Fund may, however, have indirect exposure to crypto assets by virtue of its investments in Crypto Innovators that use one or more crypto assets as part of their business activities or that hold crypto assets as proprietary investments.
The Fund employs a “passive management” investment strategy designed to track the performance of the Index. Exchange Traded Concepts, LLC (the “Adviser”) generally will use a replication methodology, meaning it will invest in all of the securities comprising the Index in proportion to their respective weightings in the Index. However, the Adviser may utilize a sampling methodology under various circumstances, including when it may not be possible or practicable to purchase all of the securities in the Index. The Adviser expects that over time, if the Fund has sufficient assets, the correlation between the Fund’s performance, before fees and expenses, and that of the Index will be 95% or better. A figure of 100% would indicate perfect correlation.
The Fund may invest up to 20% of its total assets in investments that are not included in the Index, but that the Adviser believes will help the Fund track the performance of the Index.
The Fund will concentrate its investments (i.e., invest more than 25% of its net assets) in a particular industry or group of industries to approximately the same extent that the Index concentrates in an industry or group of industries. As of [_____], 2021, the Index was concentrated in the software & services industry group and the semiconductors & semiconductor equipment industry group. In addition, in replicating the Index, the Fund may from time to time invest a significant portion of its assets in the securities of companies in one or more sectors. As of [_____], 2021, a significant portion of the Index consisted of companies in the communication services, financials, and information technology sectors.
The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and, therefore, may invest a greater percentage of its assets in a particular issuer than a diversified fund.
The Index Sponsor is not an affiliate of the Fund or the Adviser. The Index is calculated and administered by [Calculation Agent,] which is not an affiliate of the Fund, the Adviser or the Index Sponsor. The Adviser has entered into a license agreement with the Index Sponsor pursuant to which the Adviser pays a fee to use the Index. The Adviser is sublicensing rights to the Index to the Fund at no charge.
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