EXCLUSIVE: If You're Worried About a Bitcoin Crash, Calamos Top Exec Explains Why Selling Spot ETFs May Not Be Enough

Bitcoin investors worried about another sharp correction have a choice: cut their exposure to or seek protection while retaining some upside potential. Calamos Investments’ global head of ETFs, Matt Kaufman, told Benzinga that protected Bitcoin ETFs offer an alternative for investors who want to manage their downside risk without abandoning the asset entirely."Reducing the position and protecting the position solve for much different objectives," Kaufman said.Why Selling Bitcoin ETF Holdings May Not Be EnoughInvestors who trim their Bitcoin ETF holdings still face the full downside risk on the portion they retain.For example, an investor who keeps 70%-80% of their portfolio in spot Bitcoin ETFs and holds the remainder in cash would lose 28%-32% on the combined allocation if Bitcoin fell 40%, ignoring cash income, fees, taxes and rebalancing.Kaufman said reducing exposure does not provide the same defined outcome as a protected strategy."Selling 20%–30% reduces the dollars exposed, but it leaves the remaining Bitcoin investment fully exposed to a decline," he said.A protected Bitcoin ETF, by contrast, seeks to establish a defined ending loss floor over a specified outcome period, in exchange for capping potential gains.How Protected Bitcoin ETFs Limit Potential LossesCalamos offers three Protected Bitcoin ETFs with different levels of downside protection: the Calamos Bitcoin 80 Series Structured Alt Protection ETF – October , which targets 80% protection; the Calamos Bitcoin 90 Series Structured Alt Protection ETF – October , which targets 90% protection; and the Calamos Bitcoin Structured Alt Protection ETF – October , which targets 100% protection.CBTO targets a maximum loss of approximately 20%, while CBXO targets a maximum loss of approximately 10%. CBOO aims to protect against the entire decline in the reference Bitcoin index over the outcome period.For example, if the reference index falls 40% over the full outcome period, an investor in a strategy achieving its targeted outcome would face a loss of approximately 20% with 80% protection, 10% with 90% protection, and no loss with 100% protection, before fees and expenses."A Protected Bitcoin ETF instead seeks a defined ending loss floor on the invested amount, in exchange for a cap on gains," Matt Kaufman said.The protection comes with a trade-off. The 80% protection strategy generally offers greater upside potential, while the 90% and 100% protection strategies provide greater downside protection in exchange for lower upside caps.Importantly, these targets apply over the defined outcome period, relative to its starting level. They do not guarantee an investor’s principal or protect against losses based on every purchase price, particularly when buying after the outcome period has begun. Investors may also experience interim price fluctuations.The Trade-Off: Protection Versus Uncapped UpsideProtected Bitcoin ETFs are not necessarily superior to holding spot Bitcoin alongside cash. The latter preserves uncapped upside on the Bitcoin allocation, while the cash portion may earn interest.Kaufman acknowledged that a protected strategy is not right for everyone."If an investor’s overriding objective is to capture all of Bitcoin’s potential upside, and they have both the financial capacity and the willingness to accept the full downside, a capped strategy may be the wrong tool," he said.He added that the decision should depend on the investor’s goals rather than fear of a market correction."I would favor the protected structure when the targeted floor and available cap better fit the investor’s needs—not simply because the investor is nervous about a crash," Kaufman said.For Bitcoin investors, the choice ultimately comes down to how much upside they are willing to surrender in exchange for a more defined level of downside risk. Read Also: Photo: Shutterstock