Bitcoin ETF Setbacks Cost These Crypto Bulls a Mind-Boggling Fortune

Journalist:
Joseph Young @iamjosephyoung
April 29, 2019

By CCN: Bitcoin Investment Trust (GBTC), described as “the first publicly quoted securities solely invested in and deriving value from the price of bitcoin” is an investment vehicle that enables investors in the public market to purchase bitcoin in a regulated and protected environment.

Why These Crypto Investors Are Buying Bitcoin at $6,179 a Pop

GBTC is the closest investment vehicle to an exchange-traded fund (ETF) in the sense that it enables investors to invest in bitcoin without having to worry about storing or safekeeping the dominant cryptocurrency.

Traded on OTC Markets, one share of GBTC represents 0.00098409 BTC, about one-thousandth-of-one BTC. Currently, each GBTC share is trading at $6.28, which would put the implied value of bitcoin at $6,179.

The price of Bitcoin Investment Trust shares has increased by nearly 50 percent in the past month. | Source: Yahoo Finance

In contrast, bitcoin is being traded in the global cryptocurrency exchange market on regulated exchanges like Coinbase and Gemini at $5,165, demonstrating a staggering $1,014 premium versus the spot market.

In other words, secondary market GBTC investors are getting taken to the cleaners to the tune of 18 percent – all because they don’t have access to an actual exchange-traded fund that tracks the fair market price of bitcoin.

Crypto ETFs Would Eliminate Premiums Seen on OTC Products

For years, the cryptocurrency market has anticipated the approval of a bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) because of the lack of regulated alternatives for investors in the equities market.

The SEC has cited several core issues such as the lack of overseas regulations, the quality of volume in the global bitcoin market, and viable pricing methods of the asset to support its rejection of ETF proposals.

But, over the past 12 months, most issues outlined by the SEC have noticeably improved.

Major overseas markets like Japan and South Korea have implemented strict policies for exchanges, and the industry has demonstrated efforts to crack down on fake volumes to accurately portray the real liquidity of crypto assets.

Still, SEC commissioners like Hester Peirce have said that it could take years for the commission to approve the launch of the first bitcoin ETF.

“Don’t hold your breath. I do caution people to not live or die on when a crypto or bitcoin ETF gets approved. You all know that I am working on trying to convince my colleagues to have a bit more of an open mind when it comes to [crypto]. I am not as charming as some other people,” Peirce said.

The purpose of an ETF is to enable investors to invest in an asset class or a market in a regulated, insured, and transparent environment to protect investors.

The price of Ethereum Classic on OTC Markets has doubled in the past month. | Source: Yahoo Finance)

Currently, ETF alternatives like GBTC and the Ethereum Classic Investment Trust are trading with extreme premiums due to supply/demand imbalances.

Su Zhu, the CEO of Three Arrows Capital, said that investors are buying Ethereum Classic through the Ethereum Classic Trust at 175 percent premium over spot price.

The introduction of a properly structured ETF would eliminate extreme premiums and provide a better option for investors.

“Sad to see investors allowed to buy ETCG (Grayscale Ethereum Classic Trust) at 175% premium over spot ETC. Meanwhile there’s no $BTC ETF even though that would give investors a way to avoid paying absurd premiums and to access the underlying liquidity,” he said.

Bitcoin ETF Remains a LONG Ways Off

The SEC is likely to take a long time before approving the first bitcoin ETF because cryptocurrency is still a market at its infancy.

With firms such as Bitwise Asset Management and various leading exchanges proactively addressing fake volumes in the cryptocurrency market and cleaning up the industry, over the long run, the issues outlined by the SEC are expected to be resolved gradually.

Last modified (UTC): October 9, 2019 12:44

Joseph Young @iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.