For financial advisors seeking to add bitcoin exposure to client portfolios while managing risk, a new exchange-traded fund (ETF) offers an intriguing solution by combining uncapped upside potential with quarterly downside protection. The Innovator Uncapped Bitcoin 20 Floor ETF®–Quarterly (ticker: QBF) aims to capitalize on bitcoin’s historically strong returns while limiting losses through a defined outcome strategy.
The launch comes at a pivotal moment for cryptocurrency investing, as advisors seek regulated, transparent vehicles for bitcoin exposure following the Securities and Exchange Commission’s recent approval of spot bitcoin ETFs. QBF’s defined outcome approach offers a distinctive alternative to direct bitcoin exposure, addressing key concerns about volatility and risk management.
In an interview with The Wealth Advisor’s Scott Martin, Andrew Nelson, Director of Product Strategy at Innovator ETFs®, discussed how the strategy’s innovative structure provides investors a simplified path to bitcoin exposure while implementing guardrails against extreme market movements.
A New Approach to Incorporating Bitcoin Exposure
QBF’s structure addresses two key challenges advisors face when considering bitcoin exposure: managing significant volatility and maintaining meaningful upside exposure. Despite modest decreases in bitcoin’s price swings in recent years, its volatility remains over 3.5 times higher than that of the S&P 500 Index,1 making traditional portfolio allocation strategies particularly challenging for advisors looking to sustain balanced risk profiles for their clients.
Rather than implementing a traditional buffer strategy that protects against losses from zero but caps upside potential, QBF takes a novel floor approach. The strategy allows investors to participate in bitcoin’s price movements until reaching a 20% loss threshold,* at which point no further losses are incurred* if held until the end of the outcome period, approximately one calendar quarter. During periods of extreme market stress, when bitcoin has experienced quarterly declines of 40–50%, investors would see their maximum loss capped at 20%,* potentially enabling faster recovery when markets rebound.
The floor approach represents an evolution in cryptocurrency exposed investment vehicles, offering advisors a middle ground between direct bitcoin exposure and more conservative buffer strategies. By accepting initial losses up to a predetermined threshold, investors maintain meaningful upside potential while still protecting against catastrophic drawdowns.
Balancing Protection and Performance
As cryptocurrency markets mature, advisors increasingly seek structured products that balance return potential with risk management. The strategy’s participation rate structure demonstrates how QBF aims to achieve protection without sacrificing significant upside opportunity. While offering uncapped upside, QBF implements an 80% participation rate* to finance its downside protection features during its current outcome period. Investors retain exposure to the majority of bitcoin’s potential gains supported by the integration of downside protection—an arrangement that acknowledges both bitcoin’s volatility and its historical return potential.
“We did that intentionally in consideration of bitcoin’s historical performance,” Nelson says.
The strategy may particularly shine during bitcoin’s characteristic boom-bust cycles, he adds. Bitcoin returns historically “tend to kind of oscillate back and forth—they don’t really trend.” By resetting both protection levels and participation rates quarterly, the strategy maintains dynamic exposure that can potentially capture bitcoin’s upside while mitigating its extreme drawdown risk.
Strategic Quarterly Resets Keep Protection Fresh
QBF’s quarterly reset structure provides a systematic approach to implementing consistent risk parameters throughout bitcoin’s volatile cycles. The strategy refreshes its protection features on a calendar quarter basis, ensuring investors start each period with a clean slate and floor. Each reset provides investors with a fresh 20% maximum loss* for the new quarter, measured from the quarter’s starting value to its end.
The quarterly cadence aligns with bitcoin’s historical volatility patterns, seeking to participate in potential recovery rallies inside a consistent protection framework. “We want to give folks the opportunity to participate in that upside again but avoid some of those drawdowns in your period and hopefully recover a lot faster,” Nelson says.
Regular resets provide a crucial advantage in cryptocurrency markets, where dramatic price swings can occur in compressed timeframes. By refreshing protection levels quarterly, the strategy is designed to help investors maintain exposure through various market conditions while keeping risk parameters current and relevant.
Building on Proven Protection Strategies
For advisors evaluating QBF, Innovator’s track record in defined outcome investing provides important context. “The idea of these floors or buffers is certainly not new,” Nelson explains. “In fact, we innovated and brought the strategies to ETFs in 2018, so it is our expertise to utilize this sort of idea.” This institutional understanding has proven particularly valuable as Innovator adapts its defined outcome strategies to the unique characteristics of cryptocurrency markets.
Nelson emphasizes three key evaluation criteria for advisors: the reference asset (ETPs holding bitcoin), the risk-management framework (floor-based protection with uncapped participation), and Innovator’s established defined outcome investing approach. Together, the strategy’s foundation in a risk-managed approach and its application to bitcoin’s unique characteristics create a potentially compelling case for portfolio inclusion.
The combination of established risk-management strategies with cryptocurrency exposure demonstrates how legacy investment principles can be adapted for emerging asset classes, providing advisors with familiar frameworks for evaluating and implementing bitcoin exposure.
Meeting Diverse Client Needs
Client demand for cryptocurrency exposure continues to grow, pushing advisors to develop thoughtful allocation strategies that satisfy both return objectives and risk-management requirements. QBF addresses what Nelson describes as the “Goldilocks problem” in bitcoin exposure—finding the right balance between capturing upside potential while seeking protection against significant drawdowns. For advisors managing diverse client bases, this Innovator strategy offers a potential solution for both aggressive investors seeking crypto exposure and conservative clients requiring volatility management.
Early market response suggests strong advisor interest in the strategy, with Innovator’s internal launch webcast for QBF drawing record attendance, signaling significant curiosity about incorporating hedged bitcoin exposure into client portfolios.
The strategy seems to particularly resonate with advisors already familiar with bitcoin exposure. Nelson notes that, in his experience, such advisors quickly grasp the strategy’s value proposition. “They understand and say, ‘Well, I could add going forward in this fashion and get almost the same type of exposure, but with some guardrails in place,’” he says.
By combining uncapped upside potential with quarterly downside protection, QBF represents a significant innovation, offering advisors a structured approach to incorporating bitcoin exposure within client portfolios while incorporating crucial risk-management parameters. Nelson distills the value proposition to its essence: “Bitcoin exposure, 20% floor* on a calendar quarter basis, as simple as that, all in one single ticker, QBF.”
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Additional Resources
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Disclosures
*The “20% Floor,” “20% Max Loss,” and “Participation Rate” are not guaranteed and are stated prior to taking into account fees and expenses.
1 Source: Bloomberg, Innovator. Data from 12/31/2013–12/31/2024. Bloomberg Bitcoin Index and S&P 500 Index performance evaluated. Past performance is not necessarily indicative of future results. One cannot invest directly into an index.
The Fund does not directly invest in bitcoin.
When comparing Bitcoin spot price performance to the Fund, one should recall that the Fund’s fees and expenses are not born by investors in Bitcoin. Transactions in Fund Shares may also result in brokerage commissions. This material is provided for informational purposes only and is made available on an “as is” basis, without representation or warranty. This information is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. This video is not being provided as investment advice. Viewers should consult with their investment and tax advisers to obtain investment advice. Evaluations of market conditions are only current as of the date of publishing, are subject to change without notice, and are not intended to be a forecast of investment outcomes.
There is no guarantee the Fund will achieve its investment objective. The Fund has characteristics unlike many other traditional investment products and may not be suitable for all investors. For more information regarding whether an investment in the Fund is right for you, please see “Investor Suitability” in the prospectus.
The Fund faces numerous market trading risks, including Bitcoin risk, Bitcoin ETP risk, Defined Outcome strategy risk, Floor risk, Participation Rate risk, Outcome Period risk, derivatives risk, position limits risk, correlation risk, management risk, market risk, investment in a subsidiary risk, market maker risk, non-diversification risk, operation risk, options risk, trading issues risk, upside participation risk, and valuation risk. For a detailed list of Fund risks see the prospectus.
The Fund seeks to provide shareholders with investment results that participate in a percentage of any positive price returns of Bitcoin (the “Participation Rate”) while pursuing a maximum loss of 20% of any Bitcoin price return losses (the “Floor”), before fees and expenses, over the Outcome Period. The Fund provides exposure to Bitcoin price returns by investing in FLEX Options that reference one or more exchange-traded products that hold Bitcoin directly or that reference the CBOE Bitcoin U.S. ETF Index. The Fund does not directly invest in Bitcoin.
The Fund will not participate in the entirety of gains experienced by the Bitcoin price and Fund shareholders will forfeit any gains in the Bitcoin price that exceed the Participation Rate. The Participation Rate should be considered before investing in the Fund.
The Participation Rate is a result of the Fund’s sought-after downside protection and is dependent upon market conditions at the time the Fund enters into its FLEX Options for the Outcome Period and is likely to rise or fall from one Outcome Period to the next. It is possible that the Participation Rate in a subsequent Outcome Period could be substantially lower or higher than the current Participation Rate.
The Fund will experience the losses of the Bitcoin price on a one-to-one basis prior to the Floor. If the Outcome Period has begun and the Fund has increased in value, an investor purchasing shares at that price may experience additional losses prior to the Floor to the extent the price of Shares has appreciated since the commencement of the Outcome Period. An investment in the Fund is only appropriate for shareholders willing to bear those losses.
The Outcomes may only be realized by investors who hold shares at the outset of the Outcome Period and continue to hold them until the conclusion of the Outcome Period. Investors that purchase shares after the Outcome Period has begun or sell shares prior to the Outcome Period’s conclusion may experience investment returns that are very different from those that the Fund seeks to provide. The Fund will not terminate after the conclusion of the Outcome Period. After the conclusion of the Outcome Period, another will begin. Fund returns for a single Outcome Period will be different than the Outcomes achieved by the Fund over multiple Outcome Periods. There is no guarantee that the Outcomes for an Outcome Period will be realized.
Bitcoin Investing Risk. The further development of the Bitcoin Network and the acceptance and use of Bitcoin are subject to a variety of factors that are difficult to evaluate. The value of Bitcoin has been, and may continue to be, substantially dependent on speculation. The slowing, stopping or reversing of the development of the Bitcoin Network or the acceptance of Bitcoin may adversely affect the price of Bitcoin. Bitcoin is subject to the risk of fraud, theft, manipulation or security failures, operational or other problems that impact the digital asset trading venues on which Bitcoin trades. The Bitcoin Blockchain may contain flaws that can be exploited by hackers. Cryptocurrency exchanges have stopped operating and have permanently shut down due to fraud, technical glitches, hackers, or malware. Cryptocurrencies operate without central authority, are not backed by any government, and may experience very high volatility.
FLEX Options Risk. The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. In a less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of reference asset.
The Fund’s investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus and summary prospectus contain this and other important information, and it may be obtained at innovatoretfs.com. Read it carefully before investing.
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Investing involves risks. Loss of principal is possible. Innovator ETFs are distributed by Foreside Fund Services, LLC.
