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Crypto Update | A Bitcoin ETF With 100% Downside Protection: Calamos' New Product Explained
00:14:43
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If you're going to do risk management, a lot of times you're dealing with people's life savings. And so you want to make sure that you innovate, but you innovate with security.
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We all want to believe in something. In Chinese, belief also means trust. We want to trust our systems and each other so we can build a.
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Future beyond what we know.
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Join us at Consensus Hong Kong, where.
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Where belief becomes real.
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Hello and welcome to Markets Daily, hosted by me, Jen Senassi. On this show, we navigate the current shaping the crypto markets, providing insights against the broader financial landscape. So whether you're actively trading or simply interested in the volatility of the crypto markets, the show is your compass to understanding what's happened, where we are and where we're going. On today's show, we have Calamos Head of ETFs Matt Kaufman. Matt, welcome.
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Hey, Jen, thanks for having me. Good to be here.
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Of course. Great to have you here. Big news coming out of Calamos. Yesterday you launched a new Bitcoin ETF that promises 100% downside protection. Let's just talk about what this means and how you can make that work.
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Yeah, that's a, that's a lot to unpack. A big statement, you know, being able to deliver 100% protection relative to the price of bitcoin. So yesterday, looking at my calendar here, January 22nd, we launched CBOJ, the world's first protected Bitcoin ETF. So it gives you the upside of bitcoin to a cap rate. You know, there's no free lunch here and then you have 100 protection over a one year outcome period. So built fairly similar to an outcome based etf. If, if your listeners are familiar with those, there's a couple hundred of those in the market. And so we've now delivered what I, what I would think is a very remarkable tool for adding protection to your bitcoin exposure. So we're excited about that. We just struck our cap rate as well. That was last night. So now the cap rate we can announce that is 11.65%, which is higher than you'll get in any other equity market when it comes to capital protected growth.
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Talk to me about the demand you saw leading up to this product. What drove you to launch this? And I know that there are two other products with a little bit less protection, higher upside coming out on February 4th. Was this purely created because you were seeing demand from your customers?
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Yeah, there's obviously tremendous demand for bitcoin in the marketplace today. You Know, that is such a huge story of innovation. It's been a breakthrough in the way that people think about money stores of value. You know, in the traditional financial world, we watched a lot of this play out over the last 10, 15 years and seeing this move into the, you know, exchange traded fund market, we saw $100 billion go into spot Bitcoin ETPs over the last 12 months. You know, it sounds a little esoteric, but from my perspective we're seeing, you know, this is humanity's really first attempt to establish a digital currency framework. Your, your listeners are very familiar with that. And so we've got this asset that has now appreciated significantly in value. So thinking about how we approach an asset like Bitcoin, which exhibits an epic level of volatility. So in short, you know, I think people want to participate in the future, but they want to be responsible. They want to be confident when they access the growth of Bitcoin. But, you know, have an eye toward preserving wealth. And so that's why we built the first suite of managed risk or protected Bitcoin ETFs. We basically built Bitcoin with a safety net. So we launched our 100% protection product on January 22, and then February 4 we're launching a 90% protection level and then an 80% protection level. So we think that's going to be a really great way for people to access Bitcoin in a measurable way. From my perspective, it really takes that crypto frontier and puts it in a landscape and a framework that people are comfortable with.
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I'm going to steal Some words from CoinDesk reporter Helene Braun here. She wrote the article yesterday when the news broke and she said in simple terms that this is for the product that launched yesterday. If an investor bought a hundred dollars worth of shares in the etf, Calamos would put a percentage of that in treasury bonds and would grow back to $100 over a one year period, ensuring that regardless of where the price of Bitcoin stands at the time the investor has the full $100. I think she did a good job, but just kind of breaking that down for folks who are trying to wrap their heads around how this might be different than the Bitcoin etf' exist in the market today, or existed solely in the market until this product was launched. Now, I gotta ask you, I know it takes a long time to bring these products to market. I know there are various different steps. But I gotta ask you about the timing. We had the inauguration of the new president on January 20th it was. It's been a real, real celebratory event for the crypto industry as they anticipate more clear regulation. Did the, the launch of this have.
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To do with that? I cannot take credit for that. That timing worked out phenomenally. You know, we've been working on this product for, you know, gosh, probably almost a year. Watching the spot Bitcoin ETPs come to market in January. In the ETF marketplace, if you have a very liquid etf, then you tend to have options on that ETF as well. So we were following that in the bitcoin space. We had the spot Bitcoin ETPs come out in January and then we saw filings for options. The SEC kind of put their hand up and said, hold on, we're not quite ready for options on, on crypto yet. And so there was a pause there. We were working in the background on, okay, once these do get approved, how would we build this? How can we construct this? So we had a lot of, you know, a lot of time to be able to do that. You know, just a little background on Calamos. We've been in the market for nearly 50 years as a risk manager. Started as a convertible bond manager, which, you know, you look at Michael Saylor and what's happening with microstrate. Convertible bonds are actually kind of becoming more mainstream. They're a little bit of a sleepy area of the market for a while when rates were low. But now we have an ETF CVRT that has access and exposure to those microstrate converts which, you know, tend to be institutional 144A convertible bonds. But I'm getting off on a tangent now, I guess.
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Tell me a little bit more about how this compares OR competes with MicroStrategy's convertible bonds. Both offer some downside protection. Just talk to me a little bit about the differences.
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Yeah, so the difference here is with our ETFs, you're getting pure bitcoin exposure. You're not tied to a call option on the performance of Micro Strat. You're actually getting risk managed exposure to Bitcoin. So, you know, you talked about the article that was written. You know, we can go through that exercise and really simply lay out how we've built this. If I just gave you $100, you know, we can recreate this exercise. We're going to spend about $96 or 96% of the portfolio is going into zero coupon treasury bonds. So those all have a one year expiration. And so we buy $96 or 96% worth because the one year risk free rate today is about 4%. And so I know that I'm going to buy those bonds at a discount and they're going to appreciate to 100 over the next year. So I know that I'm going to be protected by Treasuries. The protection is not coming from options on Bitcoin or spot Bitcoin or anything like that. The protection is actually coming from U.S. treasury bond bonds. And so that gives me 4, 4% or $4 to work with. So the next legs I'm going to do are a call spread. So I'm buying an at the money call on a spot Bitcoin index. So it's a CBO Bitcoin US ETF index that we're buying options on and at the money call gives me upside opportunity and then I'm going to sell an out of the money call in order to collect some income from that to help pay for that protection. So that gives me an experience where I have 100% fully funded options package. I have protection from Treasuries. So worst case, Bitcoin goes to zero, your call spread expires worthless and you're left with a basket of $100 in US treasuries. And then for the 90 and the 80 we just take it down 10%. So you'll be left with 90 or you'll be left with 80. Who's the.
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Ideal investor for this product?
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Oh, that's a good question. I think the answer is it depends. I'd like to think everyone has a, you know, use case for something like this. When you think about 100% protection, the first thing that, you know, came to my mind is why would you want to give up all of your upside to Bitcoin? What's the point of that? Bitcoin might go up a thousand percent. Why do I want 12%? Well, the reason is that this is a tool for risk management. And so, you know, maybe if you're a growth minded investor, younger investor, you've got time in the market, time for Bitcoin to run. You know, Maybe you're choosing 80% spot exposure and 20% in CBOJ and now you've just taken off your tail risk, you've taken 20% risk off the market, but you're capturing 80% of every upside move in Bitcoin. So we're seeing growth minded people use this as a tool to actually dial in, you know, how much risk management they want. Even if it's just to take off A little bit of that tail risk. When you think about capital protected growth, there's trillions of dollars in cash. You know, some say what's sitting on is sitting on the sidelines. It might be in index CDs or fixed indexed annuities or capital protected structure products, money market funds. People have been chasing or investing in, in these higher risk free rate products now that interest rates are higher than they were a few just a few years ago. So you think about capital protected growth. Bitcoin is actually your best power source. It goes up faster than anything else, you know, in the last 10 years. It goes up beyond that cap rate more often than any other equity index. And so if you think about getting an 11.65% cap rate with no downside risk, if you think Bitcoin's going up, that's about the best deal in town. For risk free money, you know, you might get 4% on a risk free rate that's treated as ordinary income when that product expires. Or you can tie your cash to bitcoin. Now who would have thought you ever would have been able to make a statement like that? You know, I've got safe money, I'm going to put it to Bitcoin. Like that is something that you can now do.
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Well, I got to ask you, some of that audience that you just described there may have gotten into the Bitcoin ETF when it launched last year and they're seeing some incredible upside. Now it sounds like what you're saying though is this is really a diversifier, something to protect your portfolio as, as they continue to get their toes wet. Is that correct?
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Yeah, that's right. And now you can access Bitcoin from any part of your portfolio. You know, we've seen some studies that say pull from mag 7. Why, why would it say that? You know, it's because Mag7 is traditionally high growth area, maybe a little bit more volatile. So the idea is to create, is to swap like for like you want to swap some Mag7 exposure, go into Bitcoin. Now you don't have to do that. Maybe you want to sell some bonds, maybe it's cash on the sidelines. There's a lot of different ways you can pull from your portfolio to access the appreciation potential of Bitcoin. If you pull from those safer assets now, you actually are creating a much bigger growth trajectory for your portfolio than if you've given up. Whatever mag7 is going to do in the future, basically sacrifice that for whatever Bitcoin is going to do. I Don't know that that's necessarily the right way to do it. Now that these ETFs are in the.
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Market, I got to ask about the fee. 0.69%. That's higher than the ETFs that are already in the market. Now. When those ETFs launched, we were talking a lot about this sort of fee war that was going on at the time. Talk to me about this, this fee. How do you remain competitive against those products that are already in the market? And do you expect it to come down like we saw some of the fees come down with those prior products?
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Yeah, we saw the grayscale product like you know, was I guess, quote expensive, you know, when. But it was the only one, only game in town. And then we saw 10 more ETF providers start to come to market and they started competing with each other. I've never seen anything like it. You start seeing competition on fees before the products even launch. In the options and risk management world, you know, we're actually really price competitive. If you look at the outcome based space, you see price ranges from, you know, 85 basis points, 79, we're at 69. So one of the lower in the marketplaces. And then if you, you know, look at more, you know, options based strategies that might be leverage, those can be 1 to 1 to 2%. So you know, from that perspective, we're relatively low. From a fee, a fee perspective.
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Do you have plans for any other cryptocurrency ETF like this in the future?
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Yeah, we're starting with bitcoin. I think what I would say is we'll build risk management on anything that's liquid. And so if you follow the ETF space, you see risk managed products on the S&P 500, NASDAQ, Russell 2000 and now Bitcoin. $100 billion space. In the ETF world, $1.9 trillion market cap is the size of bitcoin. Just passed silver. Got ways to go before we hit gold. I think gold's about 18 trillion in market cap here, about the size of Nvidia. So we're seeing a lot of liquidity there. You know, as far as spot Bitcoin ETPs go, they trade about 2 to 5 billion dollars a day. So at Calamos, we want to build things with security. You have to if you're going to do risk management, a lot of times you're dealing with people's life savings and so you want to make sure that you innovate, but you innovate with security. So I currently don't have plans to do anything on on other types of crypto. If they start to achieve the liquidity levels that we're seeing in bitcoin, then I think that's a possibility.
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Matt, thanks so much for joining the show and congratulations on the launch.
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Thank you.
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And thank you to our audience for watching and listening to Markets daily. If you don't already do it, subscribe to the Coindesk Podcast network that is available on all podcasts platforms. If you prefer to watch this show, we are on YouTube. Subscribe to us there, give us a thumbs up and we'll see you tomorrow.