Bitcoin Is Set To Break Out, But Is ARKB A Good Way To Gain Exposure?

Summary Bitcoin is consolidating below its all-time high and forming a bullish pattern, potentially setting up a break higher. The ARK 21Shares Bitcoin ETF provides a safer and easier way to invest in bitcoin, with assets held at a regulated custodian. The custodian employs various security measures, including cold storage and insurance, to protect investors' assets. Bitcoin is consolidating just below its all-time high and is forming a bullish pattern which could set up a break higher. Owing some bitcoin in your portfolio seems prudent, and thanks to the new ETFs on the market, is easier than ever before. This article looks at the ARK 21Shares Bitcoin ETF ( ARKB ) and evaluates whether it is a good way to invest in bitcoin and position for a break-out. Bitcoin Making a Bullish Consolidation Bitcoin reached a new all-time high of $73.7K earlier this year, partly driven by new funds `into ETFs like ARKB. However, the previous all-time high of $69k from 2021 is major resistance and stalled the rally. Bitcoin is now trading back below the $69k high at $63.5k as shown by the weekly chart. BTCUSD Weekly Chart (TradingView) After making an impressive 90% rally from the early 2024 low, the rally was too stretched to make a sustainable break to new highs. Consolidation would be healthy and should set up an eventual break higher. Assuming there is a small dip/consolidation followed by a break-out, a bullish cup and handle pattern would form. Cup and Handle Pattern (Investopedia) We can already see the "cup" and some "handle" have formed. Some traders may want to wait for a fully complete pattern, but by that time the price will be 20% higher. I tend to speculate as a pattern is forming and accept more risk for potentially more reward. Zooming in slightly to the daily chart, the pattern resembles a bull flag, which is valid as long as prices hold above $60,760. A break of this level could lead to a sharp drop to $50.8k, but the larger cup and handle pattern could still form, and the outlook would still be bullish. BTCUSD Daily Chart (TradingView) In short, bitcoin is technically bullish in multiple timeframes. Fundamentally, there are potentially bullish catalysts, including the upcoming halving expected on 19th April. As the chart below shows , the previous three halvings have been positive as supply is constrained. Reactions to Halving (VanEck) The growth of ETFs should also have a positive effect. The total AUM of crypto funds is rapidly heading towards $100B and driving up prices. The institutional race for Bitcoin, catalyzed by the high demand for ETFs, is significantly impacting the market by absorbing available BTC supply and consequently driving up prices. This has resulted in BTC-backed ETPs accounting for approximately 4.9% of the total BTC supply, with the ten newly introduced BTC Spot ETFs holding 3.9% of the supply, valued at $48.2 billion. ARKB - Is it Safe? ARKB is one of the new ETFs which make buying and holding bitcoin much safer and easier. As per the prospectus , The Trust provides investors with the opportunity to indirectly access the market for bitcoin through a traditional brokerage account without the potential barriers to entry or risks involved with holding or transferring bitcoin directly or acquiring it from a bitcoin spot market. One of my main concerns in the cryptocurrency space is the security of my holding, and ARKB addresses this by holding its assets - currently $2.7bn in bitcoin - at a custodian. The Trust will custody its bitcoin at a regulated third-party custodian, Coinbase Custody Trust Company, LLC ("Coinbase Custody" or the "Bitcoin Custodian"). The Bitcoin Custodian is chartered as a New York State limited liability trust company that provides custody services for digital assets. The custodian employs various methods to keep the assets safe, including holding "a substantial portion of the private keys associated with the Trust's bitcoin in "cold storage" or similarly secure technology" and ensuring assets are "held in segregated accounts on the Bitcoin blockchain, commonly referred to as "wallets," and are therefore not commingled with corporate or other customer assets." Of course, this is not 100% safe, and I am comforted to see the custodian holds insurance. Even if another Sam Bankman-Fried debacle were to unfold , the assets should be covered. The Bitcoin Custodian maintains a commercial crime insurance policy, which is intended to cover the loss of client assets held in cold storage, including from employee collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer. The conclusion is that ARKB is safe, or at least as safe as possible. The risks come from bitcoin itself, which is a volatile asset, and from ARKB underperformance/expenses. ARKB - Correlation to Bitcoin ARKB was launched on January 9th this year, so there is not much data to track in regard to performance and how well it tracks the underlying asset. So far, at least, it has correlated very closely, as it should. BTCUSD v ARKB (TradingView) There are slight swings away from its NAV, but the discount and premium have always stayed within 1%. Data by YCharts ARKB does have an expense ratio of 0.21% which was waived briefly until the AUM grew above $1B. This will drag the performance down slightly in the long term but with such a volatile underlying asset, it is hardly a major concern. Other factors may knock the correlation off track. One is liquidity and potential slippage with large trades under volatile conditions. Bitcoin has not had a major drawdown / volatile period since the ETFs were launched earlier this year so their performance under times of stress is still unknown. Another risk is that, according to the prospectus, "a temporary or permanent "fork" of the Bitcoin blockchain could adversely affect an investment in the Trust." A fork happens when a split in the Bitcoin network creates two separate branches, each with its own protocol. In terms of liquidity of ARKB itself, this is ample with an average daily dollar volume of $149.12M. Other Risks ARKB itself has minimized the risks involved with trading and holding bitcoin. As mentioned earlier, the main risk comes from bitcoin itself. It has rallied 90% this year and has reached formidable resistance at the 2021 high. A pullback / consolidation is normal, healthy even, but this could develop into something more serious. Dropping below the 2024 low of $38.5k would suggest bitcoin is in a new downtrend. While it should eventually recover, the drawdown could be significant. Other Funds There are over a dozen bitcoin ETFs and very little to tell them apart as they should all track the price of bitcoin. Expenses and safety are perhaps the main considerations, and ARKB compares favorably. Cryptocurrency ETFs (ETFdb.com) The funds with 0% expense ratios are deferring expenses like ARKB did in the period after launch. GBTC's 1.50% expense ratio is now prohibitive, but the differences in the rest of the funds are small. IBIT is ARKB's main competitor, but there is only 0.09% difference in the expense ratios. Conclusions Bitcoin is making a bullish pattern in multiple timeframes and should be setting up a more sustained break to new all-time highs. ARKB is a safe, cheap way to gain exposure to bitcoin and position for the break-out.