Bitcoin surges to $60,000, FDIG crypto and digital payments ETF takes center stage | Private Equity Weekly

Bitcoin eyes the $60,000 level. Since the SEC approved 11 spot Bitcoin ETFs last month, the volatile cryptocurrency has generated strong buying interest.While the price of the world’s most valuable cryptocurrency fell from around $49,000 to nearly $38,000 Money poured into the space in the days after news of the ETF approval broke. Currently, Bitcoin is only 15% away from its all-time high of $69,000 at the end of 2021. As Mag 7 stock cools off, money may be flocking to new areas of riskier growth opportunities.

The rally also triggered buying of shares in companies related to digital payments, some of which own physical Bitcoin. I have a Hold rating on the Fidelity Crypto Industry and Digital Payments ETF (NASDAQ: FDIG).The fund has a high P/E ratio and the technical chart Showing some warning signs.

Bitcoin nears all-time high

According to the issuer, the investment returns provided by FDIG (before fees and expenses) generally correspond to the performance of the Fidelity Crypto Industry and Digital Payment Index. The index is designed to reflect the performance of companies around the world engaged in activities related to cryptocurrencies, related blockchain technologies and digital payment processing.

FDIG is one of the highest-ranked ETFs according to Seeking Alpha’s quantitative ranking system. Still, it’s a small fund, with just $105 million in assets under management as of February 27, 2024. The fund has an excellent A+ Momentum Rating, and despite being less than two years old, it’s already near all-time highs. What I like about FDIG is that it’s not a high-cost ETF — it currently has an annual expense ratio of 0.39%, although its trailing 12-month dividend yield is just 0.17%.

Of course, due to its high exposure to the cryptocurrency space, FDIG has a lower risk rating due to its higher annual standard deviation and highly concentrated portfolio. Additionally, the ETF has had liquidity issues at times, considering its 90-day average trading volume is just over 100,000 shares, and Fidelity notes that its 30-day median bid-ask spread is as high as more than half a percentage point. Therefore, I believe it is prudent to use limit orders during the trading day.

FDIG is concentrated in the lower right portion of the Morning Star box. That means it’s heavily allocated to small-cap growth stocks – a niche that can see wild swings in sentiment, sometimes unrelated to what’s happening at the macro level. Since only 6% is invested in large-cap stocks, the market cap and size risk is higher. Despite strong long-term earnings growth, the ETF still trades at a price-to-earnings ratio above 27.

FDIG: Portfolio Overview

FDIG is particularly risky because it invests almost exclusively in fintech-related sectors. Nearly 80% of the portfolio is invested in the financial industry, of which 19% is invested in the information technology industry.

Potential holders of the fund should pay attention to the fundamentals and technical developments of FDIG’s three largest holdings: Marathon Digital Holdings (MARA), Coinbase (COIN) and CleanSpark (CLSK). Many of the fund’s top holdings have performed extremely well over the past six weeks given the rapid rise in Bitcoin and other cryptocurrencies, with FDIG’s chart approaching a key point that I will detail later in this article.

FDIG: Holdings and Dividend Information

Seasonally, Bitcoin’s performance in February was as usual. As of this writing, spot Bitcoin is up over 40% this month. Historically, this is consistent with how strong February has been. Since 2014, increases have occurred in the second month of every year except once. However, March is a tough time based on historical trends, so it might be wise to reap the gains now.

Bitcoin Seasonality: Boom in February and Weakness in March

Technical points

FDIG has surged over the past few weeks. Note in the chart below that the fund has now surpassed the $30 mark after falling below $10 per share in late 2022. The ETF actually hit an all-time high late last year, although it didn’t exist when Bitcoin approached $70,000. This latest move comes amid a slightly weaker RSI, but the month isn’t over yet. We may see some initial resistance at last year’s highs before rallying further.

But looking at how well FDIG held its rising 200-day moving average during the sharp sell-off in early 2024 – with both the 200-day and short-term 50-day moving average rising, the trend is clearly in favor of the bulls. Additionally, as ETFs rise, trading volume tends to surge, a classic bull market sign.

Overall, momentum is good, but a pause at the December highs is possible as we erode a more neutral or even slightly bearish seasonality in crypto, which could have a negative impact on FDIG.

FDIG: Testing its all-time highs, monitoring momentum trends

bottom line

I have a Hold rating on FDIG. A wave of speculation has hit cryptocurrencies and digital payments stocks. I assert that some caution is warranted today ahead of a historically difficult month for the sector.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.