This Fund Is Riding Bitcoin To Top (#GotBitcoin?)
Grayscale Bitcoin Trust is among biggest beneficiaries of recent cryptocurrency boom. This Fund Is Riding Bitcoin To Top (#GotBitcoin?)
Bitcoin is booming again. One of the biggest beneficiaries is a fund that provides everyday investors with access to the world’s most popular cryptocurrency.
In the second quarter, the price of bitcoin more than tripled, reaching a high of almost $14,000 before cooling down to around $12,000 in the last week of June, according to research site CoinDesk.
Grayscale Bitcoin Trust gained 192% for the quarter as of Thursday, according to Morningstar, outperforming all funds and other mainstream investments. The S&P rose 3.8%, gold futures went up 9% and corn futures jumped 21% during the quarter.
Grayscale’s rise has given it another distinction: No fund performed better during the first half of the year. The company that oversees the trust, Grayscale Investments LLC, runs another cryptocurrency investment product that was the second-best-performing fund during the second quarter and 24th best year to date as of Thursday, according to data from Morningstar.
Optimism about digital currencies is surging on expectations of greater mainstream adoption by investors and big corporations. After Facebook Inc. disclosed plans for a new cryptocurrency, Libra, in June, the price of bitcoin passed $13,000. Bitcoin was formed about a decade ago as a decentralized network for financial transactions that isn’t sponsored by any government.
Grayscale Bitcoin Trust is one of the few bitcoin investments that average investors can access in retirement or brokerage accounts. The trust purchases bitcoin directly and its shares trade on an over-the-counter exchange, OTCQX, at a price determined by supply and demand. Grayscale in January 2017 asked the Securities and Exchange Commission to form a Bitcoin exchange-traded fund but withdrew its application in September 2017.
Bitcoin advocates hope to create more publicly-traded bitcoin vehicles as a way of gaining greater mainstream acceptance and attracting more investors. Grayscale Investments, founded in New York in 2013 by Barry Silbert, is one of several firms or groups that have pushed to be listed by a major U.S. stock exchange. Thus far, the SEC hasn’t granted approval to any of them.
In Europe, crypto companies have had more luck. Swiss tech company Amun AG has listed five different exchange-traded products linked solely to cryptocurrencies on Switzerland’s SIX exchange since November 2018. Swedish company XBT Provider has launched eight different exchange-traded products backed by cryptocurrencies on the Nasdaq Nordic and Nordic Growth Market over the past four years.
Swiss SIX Exchange Launches Crypto ETP Denominated In Swiss Francs
Another crypto-based financial product is coming to the Swiss stock exchange SIX.
Fintech firm Amun and crypto fintech service Bitcoin Suisse announced Thursday the launch of its Swiss franc denominated Amun Bitcoin Suisse BTC/ETH exchange-traded product (ETP) under the ABBA ticker. Nine parts bitcoin and one part ether by percentage, the ETP captures some 75 percent of the total cryptocurrency market cap in one listed product.
In an interview, Amun CEO Hany Rashwan said the ETP serves as an important financial hedge. Based on the two largest cryptocurrencies by market cap and denominated in Swiss francs, Rashwan said the product is uniquely Swiss.
“It’s the conservative Swiss way of doing things,” Rashwan told CoinDesk. “It’s safe, cheap, and conservative.”
Unlike exchange-traded notes (ETNs), ETPs are legally obligated to be backed one-to-one by reserves. Amun says the ETP is fully collateralized with bitcoin and ether custodied in Switzerland by Bitcoin Suisse. The firm’s first ETP since its founding in 2013, Bitcoin Suisse currently holds some $1 billion.
The product follows Amun’s numerous other crypto-based ETPs launched this year, based on leading cryptocurrencies by volume traded such as bitcoin, bitcoin cash, ethereum and XRP.
Rashwan told CoinDesk the firm expects to have some $75 million in assets under management for this type of product’s portfolio by the end of the year, spurred on by further product launches this coming quarter, including ETPs.
“[Amun is] expanding to more stock exchanges across more geographies covering more assets and more currencies.”
Few funds better represent the ups and downs of investing in bitcoin than Grayscale Bitcoin Trust.
During the last bitcoin wave in 2017, Grayscale Bitcoin Trust was the best performing fund in the industry as it rose 1,391.44% over the course of the year, according to data from Morningstar. Bitcoin hit its all-time high of nearly $20,000 in December 2017.
After peaking at the end of 2017, bitcoin came crashing down in value. Grayscale Bitcoin Trust lost 74.61% in 2018 as a result.
That same volatility has followed the fund into 2019. After the price of bitcoin rose 265% between March 1 and its peak of $13,879 on Wednesday, the digital currency had plummeted 20% by the end of Thursday. The Grayscale Bitcoin Trust also dropped about 20 percent between its closing price on Wednesday and its closing price on Thursday, according to FactSet.
“We certainly would take the position that investing in digital assets like bitcoin is not for the faint of heart,” said Michael Sonnenshein, managing director of Grayscale Investments.
Others in money management are still skeptical about digital currencies despite some participation by giants like Fidelity Investments and JPMorgan Chase & Co.
Paul Schott Stevens, chief executive at the advocacy group Investment Company Institute, said he doesn’t see cryptocurrency as “a mainstream investment of the sort that our industry would involve itself with.”
Mr. Sonnenshein said the company’s funds allow investors to avoid the technical and legal complexities of purchasing cryptocurrencies directly.
Its parent company is Digital Currency Group Inc., which also owns blockchain news site CoinDesk and Genesis Trading, a digital-currency brokerage.
“[Cryptocurrency] just introduces so many more levels of friction,” said Mr. Sonnenshein.
“What we’ve gone ahead and done is we’ve actually packaged digital-currency exposure inside of a security in a way that makes it look, feel and act very similar to the other products that investors often use to gain exposure.”
Grayscale manages 10 investment products including its Bitcoin Trust. They all focus on specific cryptocurrencies, except for the 10th fund that contains a diversified set of cryptocurrencies.
A Grayscale representative said on June 28 that the assets under management of the Bitcoin Trust are now worth $2.56 billion. Including its other nine funds, Grayscale said it manages $2.69 billion worth of assets.
In the first quarter of 2019, $42.7 million of new client money flowed into Grayscale Investments, and 99% of that money went to the Bitcoin Trust, according to a report from Grayscale.
Most of that money, or 73%, came from institutional investors. Another 16% came from retirement accounts, 10% from family offices and 1% from accredited individuals.
To receive a primary issue of the trust fund, an accredited investor must invest a minimum of $50,000 and hold the shares for over a year before reselling them on the OTCQX.
Institutional investor ARK Investment Management LLC has used the Grayscale Bitcoin Trust to place bets on bitcoin since 2015 and, according to a representative from the company, ARK currently owns 0.26% of the trust’s shares. Another institutional investor, Kinetics Mutual Funds Inc., currently owns about 7.5% of the shares, according to the company’s general counsel.
Peter Doyle, president of Kinetics Mutual Funds Inc., said his company is bullish on cryptocurrency because it offers a better alternative for handling money to the fiat currencies controlled by central banks.
Kinetics has contended with “open hostility” and “visceral reactions of disbelief” from clients skeptical of bitcoin, he added.
Mr. Sonnenshein said that Grayscale’s investors don’t focus that much on “the near-term volatility that will quite possibly continue to exist in the asset” but rather on bitcoin’s growth potential. His company, he added, takes no offense to the rest of the asset-management industry’s skepticism about Grayscale.
“We’re the new kid on the block,” he said.