A new exchange-traded fund (ETF) aimed at risk-averse bitcoin investors has sparked debate over whether limiting both gains and losses undermines the cryptocurrency’s fundamental appeal.
The Calamos Bitcoin Structured Alt Protection ETF, which began trading under the ticker “CBOJ” last Wednesday, offers investors downside protection by combining safe investments with options on other bitcoin funds. The structure ensures that initial backers will not lose any money over the next year, even as they engage with one of the most volatile assets in financial markets.
However, the fund also imposes a cap on potential returns, limiting them to 11.65% over the same period. This constraint stands in stark contrast to bitcoin’s historical price movements. Since 2016, the cryptocurrency has recorded 23 instances where its value has surged beyond that threshold in a single day. Bitcoin’s average annual volatility stands at 86%.
Calamos argues that the ETF’s structure is beneficial, as the likelihood of hitting the maximum return is relatively high. At the same time, the potential for bitcoin to experience significant downturns remains a real risk, with prices having recently struggled to maintain the $100,000 mark. Consequently, CBOJ’s annual returns could ultimately be negligible, especially after factoring in its 0.69% management fee. By comparison, traditional savings accounts currently offer interest rates of around 4.5%.
The launch of CBOJ aligns with a broader trend in financial markets, where investment products catering to loss-averse investors have grown in popularity. Structured financial products, including “principal-protected notes,” have been a feature of the investment landscape since the 2000s. These instruments typically combine zero-coupon bonds with derivative contracts to provide limited upside while ensuring some level of capital protection.
This trend has now extended into ETFs, leading to the development of “buffer” or “defined outcome” funds. Earlier this month, PGIM introduced an ETF tied to the S&P 500, offering full downside protection and a maximum return of 7% over a year—similar to an existing Calamos product launched in January.
Historical data suggests that investors opting for such products may be sacrificing significant gains. An analysis of monthly returns shows that the S&P 500 has exceeded the 7% cap 57% of the time, with gains doubling that threshold in 42% of instances.
While structured ETFs provide investors with greater accessibility to risk-managed products at lower fees—typically under 1% compared to the 3% charged by banks—experts remain skeptical about their long-term benefits. A 2011 study by Brian Henderson and Neil Pearson found that structured products often fail to enhance portfolios when high fees and limited returns are taken into account.
Additionally, complexity remains a concern. Investors who purchase structured ETFs after their initial launch must be aware that the terms of these products fluctuate with market conditions. CBOJ, for example, saw its downside protection increase slightly to 100.03% following a decline in bitcoin’s price last week.
The psychological appeal of guaranteed capital preservation is well documented. Research by Daniel Kahneman and Amos Tversky demonstrated that many individuals reject even favorable bets—such as a coin flip offering a 50% chance to win $150 versus a 50% chance to lose $100—due to the disproportionate impact of potential losses on decision-making.
Despite these concerns, structured products continue to gain traction. Calamos has positioned CBOJ as the first in a series of three ETFs, including one with a more aggressive profile, allowing losses of up to 20% while capping gains at approximately 50%. According to Matt Kaufman, head of ETFs at Calamos, these products offer a means for financial advisors to introduce bitcoin exposure to cautious investors, as well as a tool for crypto investors to diversify their holdings.
For most investors, traditional portfolio diversification strategies remain a more effective approach. Classic investment principles emphasize balancing risk across a broad range of assets, rather than attempting to hedge all potential losses while simultaneously limiting returns. Whether CBOJ and similar products will gain lasting traction remains to be seen, but for now, they represent a cautious approach to an asset class known for its extreme price swings.