The push for a bitcoin Exchange-Traded Fund has been on for close to 4 years with no success. However, things might be looking bright for cryptocurrency traders as a closed-end fund; much similar to ETFs might be underway. While speaking on Bloomberg, Cathie Wood, chief executive officer of ARK Investment Management, said a bitcoin ETF will come into play in at least two years, possibly accompanied by a handful of “education.”
The proposed bitcoin fund will allow investors to trade in financial securities tied to bitcoins without necessarily owning bitcoins.ARK Innovation ETF, which operates the first U.S cryptocurrency exchange-traded fund, gains access to cryptocurrency through the Bitcoin Investment Trust. The BIT is an investment vehicle that allows investment in bitcoins, deriving its value from the price of bitcoins. BITs liquidate into GBTCs, after one-year holding period and sold to underlying investment funds.
GBTCs have a higher premium over the bitcoins. However, they are a much better investment as they offer greater benefits compared to buying bitcoins directly. With GBTC, investors have a titled and audible ownership. Shares are eligible to be held in tax-advantaged accounts such as IRA and are publicly quoted. Also, investors enjoy a network of trusted service providers.
Closed-ended Fund (CEF) is an investment structure that invests in portfolio securities, and whose shares trade in the open market. CEFs raise capital through initial public offering (IPO). However, unlike other funds, capital in CEFs do not flow in and out regularly. CEFS do not trade shares on the daily and instead do so on an exchange with the market determining its price. CEFs operate similarly to ETFs but are not ETFs.
Some of the shared traits include an underlying portfolio of investments with a net asset value, leverageable portfolios, and trade during the day on exchanges, expense ratios, and both offer distributions of capital gains and income.
The difference lies in that an EFT has a special creation feature that safeguards it against a significant stray from the net asset value while CEFs do not employ such a feature. EFTs tracks the index performance while CEFs have to be actively managed.
For a bitcoin ETF to be approved, the fast-growing currency may need a regulated ecosystem. A federally regulated ecosystem for derivatives using cryptocurrencies opens the market to a larger customer base. Wood is convinced that the Securities Exchange Commission may be the regulator to come on board as she views bitcoin as financial security.
Wood understands the need to have bitcoin categorized as a currency, reiterating that cryptocurrencies have a lot over the fiat currencies. This in response to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, remarks terming cryptocurrencies as “fraud.”
The speculated birth of a bitcoin fund has piqued the interest of Wall Street competitors with many seeing an excellent opportunity. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein has openly expressed his interest in the same, an act that is encouraging to Wood as it will bring more liquidity to the market.
A trade in crypto assets and developing futures and derivatives by the likes of Goldman Sachs will ensure the ecosystem is stronger. A move Wood believes is going to entice the SEC to come on board as a regulator.
A rise in number in financial products trading in cryptocurrencies in regulated exchanges has also opened the door to a myriad of investors paving way for an ETF. Speculations for a Bitcoin fund might spark excitement for a bitcoin ETF that may affect the price upwards. Bitcoins that are currently trading at $5700 may see a correction of 50% within the next one year.
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Last modified: May 21, 2020 9:10 AM UTC