Friday was the first anniversary of the world’s first exchange-traded fund backed by physically settled bitcoin.
Objective Bitcoin ETF
(BTCC.Canada), which began trading on the Toronto Stock Exchange on February 18, 2021, has proven popular. In just a month after its market launch, it has amassed $1 billion in assets under management, making it one of the fastest growing ETFs at launch and showing how eager investors are. to find a simple and safe way to gain exposure to
Today, the fund has approximately $1.5 billion in assets.
But investors in the United States are still waiting, and many are pressuring regulators to act. Although the Securities and Exchange Commission approved a few ETFs that hold bitcoin futures last October, it has repeatedly turned down applications for a spot bitcoin ETF. The agency is concerned about the high volatility of the digital asset and the potential risk of market manipulation. SEC Chairman Gary Gensler has indicated that a spot Bitcoin ETF will not be permitted until there is a strong regulatory framework around crypto exchanges.
ProShares Bitcoin Strategy ETF
(BITO), with currently $1.2 billion in assets, is the first and largest among Bitcoin futures ETFs. But futures contracts do not always accurately track the actual price of digital currency. And turning expiring contracts into new ones can cost money if the expected price of Bitcoin in the future is higher than the spot price.
The $26 billion
Grayscale Bitcoin Trust
(GBTC), a closed-end fund holding physical Bitcoins, was another popular choice. But unlike ETFs, which can freely create and redeem shares at the request of investors, closed-end funds have a fixed number of shares. No new shares can be created and investors cannot redeem existing shares to obtain the cash equivalent of the underlying assets.
Shares can be bought and sold on a public exchange, giving investors a way to withdraw money. But that means they can trade at a premium or discount to the price of Bitcoin, depending on the supply and demand for the stocks themselves. In the years since its launch in 2013, the Grayscale fund has traded at a substantial premium to the price of Bitcoin, as investors poured money into one of the only ways to invest in Bitcoin. without having to create digital wallets and secure cryptocurrency.
But the fund has been discounted since February 2021, around the time Canada launched its first Bitcoin ETF. It’s not hard to imagine why: the anticipation that Bitcoin ETFs may soon be available in the US may have made Grayscale stocks less desirable, and the price discount caused by a first wave of selling may led to a downward spiral.
On Friday, the fund was trading at around $27.33 per share, while the underlying Bitcoin it holds was worth $37.14. That’s a 26% reduction. This means that any existing shareholder who wants to exit the fund would have to take that 26% loss on top of any returns they get from Bitcoin’s price movements.
Grayscale has requested the conversion of the fund into an ETF. But like those of many competitors, the application is pending with the SEC. The company encouraged its shareholders to share their thoughts on the conversion, and more than 170 letters— many of them from frustrating investors — were submitted to the regulatory agency in February alone.
“As an investor, I don’t feel like I’m protected by the SEC,” one comment wrote. Another said, “I bought this [fund] ahead of all hedge funds. We buy this to get exposure to [Bitcoin] when it was trading close to NAV. Now they’re gone and I’m holding the bag paying a 2% management fee and trading at a 27% discount to the underlying assets. »
Meanwhile, the Canadian Purpose Bitcoin ETF continues to do what it promised to do. It accurately tracks Bitcoin’s performance and provides investors with easy access to cryptocurrency. Purpose Investments reports that the fund’s daily tracking error against the price of Bitcoin was only -0.01%.
Write to Evie Liu at [email protected]