In January, the SEC officially approved exchange-traded funds directly tied to Bitcoin. So-called “spot” Bitcoin ETFs can hold the digital asset without ambiguity or complications.
While there have been some funds in recent years that have provided indirect exposure, the new funds offer investors the opportunity to tie their money very closely to the daily movement of Bitcoin prices on “spot” markets.
But not all new funds will collect enough shareholder money. This can be fatal for a fund. Finally, a fund that charges 0.30% annual expenses and has only $50 million in total assets would generate just $150,000 per year in management fees. That's not much for a marketing budget, regulatory compliance, or other necessary expenses.
Grayscale Bitcoin Trust
If the SEC only recently gave funds permission to operate as spot Bitcoin ETFs, how come Grayscale Bitcoin Trust has been running since 2013? In its early days, GBTC was not an ETF.
As a trust, GBTC acted somewhat like a closed-end fund. This meant it lacked the highly liquid and frictionless redemption mechanism that ETFs have. As a result, stocks have often traded at a large premium or discount to the actual value of the underlying Bitcoin. Investors are understandably hesitant to pay, say, $1 for assets worth 90 cents. With the SEC's approval of conversion to an ETF, GBTC was placed on a level playing field with the other 10 ETFs that received approval to operate from the SEC.
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