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As is often noted in this space, issuers of exchange traded funds are an inventive lot. Where’s a void, they’ll likely fill it. A unique niche? You bet at least one ETF sponsor will attempt to capitalize on it.
That’s certainly true of the cryptocurrency space – a new, but intriguing ETF genre. An ETF segment that started with equity-based blockchain funds before evolving to bitcon futures and crypto miners ETFs and the onto the popular spot bitcoin ETFs continues spread its wings.
Take the case of the REX Bitcoin Corporate Treasury Convertible Bond ETF (NASDAQ: BMAX), which debuted last Friday. Consider the actively managed BMAX an ETF play on the strategy pioneered by Michael Saylor’s Strategy (MSTR). That being issuing convertible bonds to fund purchases of bitcoin.
Convertibles are known as hybrid securities, meaning they display both equity and fixed income trait. Equity traits are derived from the fact convertibles can be converted into shares of the issuer’s stocks. The debt part is self-explanatory.
Bet on BMAX for Bitcoin Bond Access
To be clear, BMAX is not equivalent to direct ownership of bitcoin or holding one of the related spot ETFs. The new fund holds convertible bonds issued by companies that used the proceeds from those sales to buy bitcoin. So BMAX can be seen as “derivative” or “synthetic” bitcoin exposure.
“By investing in these convertible bonds, BMAX seeks to provide a unique blend of debt stability and equity upside,” according to a statement issued by REX Shares. “Investors gain exposure to companies leveraging Bitcoin in their treasury strategy while benefiting from the structural advantages of convertible bonds. Rather than sourcing individual bonds or navigating the complexities of Bitcoin ownership, BMAX offers a streamlined, regulated way to engage with this market and obtain indirect exposure to Bitcoin in a more conservative way than direct ownership.”
To the letter of the law, BMAX is a bond ETF, but convertibles are the forms of debt that usually most correlated to equities and crypto stocks are often highly correlated to bitcoin. Thus, BMAX can credibly be seen as synthetic bitcoin exposure.
A possible knock on the fund is that because the universe of convertibles used for bitcoin buying is small, BMAX’s lineup is as well. It holds 10 convertibles courtesy of just three issuers: Strategy and bitcoin miners MARA Holdings (NASDAQ: MARA) and Riot Platforms (NASDAQ: RIOT).
Due to BMAX being actively managed, it’s possible that as more companies sell convertibles to buy bitcoin, the new ETF’s roster will rapidly increase in size. For now, that remains to be seen.
BMAX Delivers Access
As is the case with so many new ETFs, a large part of BMAX’s appeal lies in access provided. Said another way, buying individual convertibles, related to bitcoin or otherwise, is tricky for many retail investors. BMAX solves that issue.
“BMAX is the first ETF giving retail investors and investment advisors access to convertible bonds issued by companies integrating Bitcoin into their financial strategy,” said Greg King, CEO of REX Financial. “Until now, these bonds have been difficult for individual investors to reach. BMAX removes those barriers, making it easier to invest in the strategy pioneered by Michael Saylor—leveraging corporate debt to acquire Bitcoin as a treasury asset.”
The new ETF has an annual expense ratio of 1.14%, or $114 on a $10,000 investment.
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