Paris-based derivatives fund manager Melanion Capital has launched a new, European Union-regulated fund that aims to track the price of Bitcoin (BTC) at a correlation of up to 90%.
The fund is the first of its kind to be issued under the EU’s investment fund umbrella UCITS — an acronym for “undertakings for the collective investment in transferable securities.” According to the European Commission’s data, UCITS-compliant funds account for roughly 75% of all collective investments by small investors in Europe. UCITS provides a framework for regulation at the European, rather than national, level and places exacting demands on fund managers.
Melanion Capital’s fund, called the Melanion BTC Equities Universe UCITS exchange-traded fund (ETF), uses a methodology based on beta weighting to “bridge the gap” between equities and Bitcoin. Accordingly, it tracks a basket of up to 30 stocks in sectors such as crypto mining and blockchain development, which Melanion claims results in a correlation to BTC price of up to 90%.
Cyril Sabbagh, head of ETF at Melanion Capital, has pitched the product as an opportunity for investors to gain exposure to Bitcoin while eliminating risks such as loss or piracy:
“By investing in equities replicating the Bitcoin performance, investors can achieve diversified asset allocation that was not available before. Given Bitcoin’s absence of correlation to traditional assets and the ETF’s UCITS character, allocators should certainly be interested.”
Melanion CEO Jad Comair has told reporters that getting the fund approved by France’s Autorite des marches financiers (AMF) was “a real challenge because of the sensibilities and politics currently surrounding Bitcoin and Bitcoin investing.” As previously reported, there is no shortage of Bitcoin exchange-traded products listed in Europe, yet none of these have been UCITS-compliant.
Crypto mining equities account for the lion’s share of the top 10 holdings in the “Melanion Bitcoin Exposure Index” tracked by Melanion’s ETF: In order of weighting, these are currently Marathon Patent, Riot Blockchain, Hive Blockchain, Argo Blockchain, Hut 8 Mining. Other equities, from segments such as crypto banking services and crypto asset management and trading, include Arcane Crypto AB, MicroStrategy and Future Fintech.
Calculated by the German fintech BITA, the index constituents are, as Melanion has outlined, weighted according to the beta coefficient against Bitcoin, which is “capped based on liquidity, and rebalanced and reconstituted quarterly.” The ETF will initially be listed on Euronext in Paris and charge a management fee of 0.75%.
Related: Fund management firm Global X files with the SEC for a Bitcoin ETF
With ever more investment vehicles targeting the digital asset sector, regulatory approval for a Bitcoin ETF remains a fraught prospect in several jurisdictions, particularly the United States. Greg King, CEO of Osprey Funds, has nonetheless recently made the case that the consistently high number of Bitcoin ETF applications in the U.S. earlier this year — despite U.S. regulators’ longstanding reluctance to approve them — contributed toward Bitcoin’s extraordinary 2021 bull run.