Bitwise Dogecoin ETF (BWOW)

What is the Bitwise Dogecoin ETF (BWOW) all about?

The Bitwise Dogecoin ETF (BWOW) trades on the NYSE Arca exchange. It lets you invest in Dogecoin without directly buying or holding it. Think of it this way: the ETF aims to match Dogecoin's value, after its operating costs. It specifically aims to follow Dogecoin's price, after its 0.75% yearly fee. It does this by directly holding Dogecoin.

Bitwise Investment Advisers, LLC, the "Sponsor," doesn't actively trade Dogecoin to "buy low, sell high." Instead, it's "passively managed." This means it simply holds Dogecoin and tracks its price. As of December 31, 2023, this ETF was a Delaware statutory trust. It held about $350 million in assets, owning 4.5 billion Dogecoin.

Over the past year, BWOW had a tracking error of about 0.15%. This means it closely followed Dogecoin's benchmark price. However, BWOW shares face Dogecoin's significant price swings. Dogecoin saw price swings over 150% in the year ending December 31, 2023. Key risks include Dogecoin's speculative nature and unclear digital asset rules. Watch for network attacks, forks, and reliance on third-party platforms.

Why invest in BWOW instead of buying Dogecoin directly?

This ETF offers several benefits if you like Dogecoin but prefer a familiar way to invest:

• Easy Access: You can buy and sell BWOW shares through your regular brokerage account. It's just like trading any other stock. Shares trade on NYSE Arca during market hours (9:30 AM to 4:00 PM ET). Millions of shares trade daily, making entry and exit easy for investors.
• Avoids Direct Hassle: You avoid the hassle of setting up a digital wallet or managing private keys. You also skip cybersecurity risks and technical challenges. These often come with buying Dogecoin on unregulated exchanges. This removes the need for specialized hardware or software, making investing easier.
• No Complex Strategies: The ETF avoids risky financial tools like derivatives or borrowed money (leverage). These can add extra risk and complexity. Its simple holding strategy offers clear operations and a direct link to Dogecoin's price. It avoids risks from complex trading methods like futures or margin trading.

How does the ETF handle its Dogecoin?

• Secure Storage: The ETF uses Coinbase Custody Trust Company, LLC to securely hold its Dogecoin. They are a regulated New York trust company and a qualified custodian. They use top security measures. These include cold storage (offline private keys), multi-signature wallets, and spreading assets across locations. This protects against theft and loss.
• Insurance Note: Coinbase Custody isn't insured by the FDIC, unlike your bank account. However, they carry private insurance, usually up to $320 million. This protects held assets against risks like cyber-attacks, theft, and employee fraud. This insurance does not cover losses from price changes or new rules.
• Daily Valuation: The ETF figures out its Dogecoin value daily. It uses a standard called the "CF Dogecoin-Dollar US Settlement Price." CF Benchmarks Ltd. calculates this price hourly. It's an average price based on trading volume across eligible platforms. This ensures the fund's true value (NAV) reflects Dogecoin's real-time market value. This helps keep the share price close to the fund's true value.

How do shares get created and redeemed?

Shares of BWOW are created or cashed in large chunks called "Baskets." Each Basket typically contains 10,000 shares. Specialized financial firms, "Authorized Participants" (APs), handle this process. Examples include Jane Street, Virtu Financial, and Goldman Sachs. APs help keep the ETF's market price close to its true value (NAV).

• "In-Kind" (with Dogecoin): Authorized Participants can exchange Dogecoin for new shares, or the other way around. For example, an AP gives 10,000 Dogecoin to the Trust for one Basket of 10,000 BWOW shares. This direct exchange reduces trading fees and market disruption.
• "Cash" (with U.S. dollars): These firms can also use U.S. dollars to create or cash in shares. When shares are created with cash, an AP gives cash to the Trust. The Trust then uses this cash to buy Dogecoin. On the other hand, for a cash redemption, the Trust sells Dogecoin to get cash. This cash is then given to the AP.

When the ETF needs to buy or sell Dogecoin, it uses a "Trust-Directed Trade Model." This happens for cash creations/redemptions or to pay running costs like audit or legal fees. The Sponsor works with approved trading partners like Coinbase, Cumberland DRW LLC, FalconX, Galaxy Digital, and Wintermute. They aim to trade at good prices, getting the best deals with little market disruption. If these partners aren't available or can't offer the best prices, there's a backup plan. Coinbase, Inc. (an affiliate of the custodian) can then handle the trades. This keeps operations running smoothly.

Who runs the show?

Bitwise Investment Advisers, LLC is the ETF's "Sponsor." They manage and run the Trust. This includes setting up the fund, registering it with the SEC, and listing it on NYSE Arca. They also supervise other key service providers. These include the Custodian (Coinbase Custody Trust Company, LLC), the Administrator and Transfer Agent (Bank of New York Mellon), and the independent auditor (Deloitte & Touche LLP). The Sponsor also handles the ETF's marketing. For their services, the Sponsor earns a yearly management fee. This fee is the main part of the ETF's 0.75% yearly expense. They calculate this fee daily and pay it monthly from the Trust's assets. It covers the Sponsor's management, marketing, and administrative costs, plus fees for other service providers. This is the ETF's main running cost.