Bitcoin ETFs and the wannabe crypto funds

Image: Lindsey Bailey/Axios

If there’s one solid metric that proves crypto’s death has been greatly exaggerated, it’s the number of entry points for investors to buy crypto.

• According to research firm ETFGI, there are more than 150 exchange-traded crypto products around the world. Combined, they have nearly $11 billion in assets under management.

• Three of those are in the US, ETFGI chief executive Deborah Fuhr told Axios, speaking about how restrictive US regulators are.

Why it matters: People want an easy, direct way to invest in crypto the way they invest in stocks and bonds, but regulators have yet to approve it.

Previously the Securities and Exchange Commission has only approved ETFs holding bitcoin futures, which investors use to trade at the price they think bitcoin will strike without actually owning bitcoin.

details: ETFs are vehicles that can hold virtually any asset, whether it’s stocks, bonds or commodities like gold – but not for crypto, at least not directly, in the US

• Spot Bitcoin ETFs Exist as Real ETFs: In Canada.
• In Europe these are structured as Exchange Traded Products (ETPs). The vast majority of ETPs are ETFs, but some are technically different.
• For example, Fidelity’s Physical Bitcoin ETP, which launched on Germany’s Xetra exchange earlier this year, is a debt instrument.

Game Status: Grayscale’s application for a spot bitcoin ETF was denied by the SEC in June, ending the company’s plans to convert the $14 billion Grayscale Bitcoin Trust into an ETF.

• The Bitcoin vehicle, often referred to by its symbol “GBTC,” is not technically a fund, but a trust.
• Because of this structure, GBTC lacks the flexibility that ETFs have to create and remove shares without disrupting the underlying assets.

Grayscale’s product works in a similar way to closed-end funds. As such, only Grayscale can make or remove Shares from the market, and the Company does so through private placements and redemptions, which are only available to accredited investors, if the Company so chooses.

• Accredited investors are those whose net worth is more than $1 million or whose income is over $200,000 per year.

How it works: The great thing about an ETF is that through the use of people or firms known as “authorized participants,” stocks can be created and withdrawn from the market as needed by trading them for prorated shares of the portfolio they represent .

• This creation/redemption mechanism keeps an ETF’s price close to the net asset value of the ETF’s underlying assets.
• It can also benefit from fewer taxable events than, say, a mutual fund.

What’s happening: Regulators and would-be spot bitcoin ETF issuers appear to have reached an impasse in the US as ETF deals continue to file despite series rejections.

Be smart: That’s because it matters to be the first.

• Remember, the first Bitcoin futures ETF launched by ProShares hit $1 billion in assets under management in just a few days.
• Valkyrie and VanEck ETFs followed shortly thereafter but saw smaller inflows.

The other side: Yet a “whirlwind tour” of crypto ETP activity outside the US shows a thriving supply of crypto investment vehicles.

• “Canada has real bitcoin ETFs – regulation in Canada was very different than the rest of the world,” ETFGI’s Fuhr said. “They have real ETFs on Bitcoin, Ethereum, etc.”
• “In Europe they are structured as ETPs, with the first coming from Scandinavia and then many from Switzerland. Then Germany and Euronext accepted it,” she said.

According to Fuhr, ETF issuers from Brazil to Australia offer their products in different jurisdictions.

• “Brazil has had crypto for a while, so some Brazilian issuers are going to Europe. Australia has ETPs but extends to Canada and Europe for underlying exposure,” Fuhr said.

Aside from the ETFs that track bitcoin futures that professional investors use to place indirect bitcoin trades, US investors can also find funds (including ETFs) that hold crypto stocks.

• They usually have a mix of mining companies, categorically fintech companies like Coinbase and Robinhood, and crypto shops like Galaxy Digital and um, Voyager Digital.
• Notable: Voyager Digital’s shares are poised for delisting from the Toronto Stock Exchange after filing for bankruptcy last week.

Crystal’s thought bubble: US has few and mostly indirect crypto games unless you are rich or experienced in native crypto transactions.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers