One Year After Canada Launched Its First Bitcoin ETF, U.S. Investors Are Still Waiting

But investors in the U.S. are still waiting—and many are pressing regulators to act. Although the Securities and Exchange Commission approved a few ETFs that hold Bitcoin futures last October, it has repeatedly denied applications for a spot Bitcoin ETF. The agency is concerned about the digital asset’s high volatility and the potential risk of market manipulation. SEC Chair Gary Gensler has indicated that a spot Bitcoin ETF won’t be allowed until there is a robust regulatory framework around crypto exchanges.

The ProShares Bitcoin Strategy ETF (BITO), currently with $1.2 billion in assets, is the first and largest among the Bitcoin futures ETFs. But futures don’t always accurately track the digital currency’s actual price. And rolling expiring contracts into new ones can cost money if Bitcoin’s expected price in the future is higher than the spot price. 

The $26 billion Grayscale Bitcoin Trust (GBTC), a closed-end fund holding physical Bitcoins, has been another popular choice. But unlike ETFs, which can freely create and redeem shares per investors’ demand, closed-end funds have a fixed number of shares. No new shares can be created, and investors can’t redeem the existing ones to get the cash equivalent of the underlying assets. 

The shares can be bought and sold on a public stock exchange, giving investors a way to cash out. But that means they can trade at a premium or discount to the price of Bitcoin––depending on the supply and demand for the shares themselves. In the years after its launch in 2013, the Grayscale fund traded at a substantial premium to Bitcoin’s price, as investors poured money into one of the only ways to invest in Bitcoin without the hassle of creating digital wallets and securing the cryptocurrency. 

But the fund has been at a discount since February, 2021, right around the time when Canada launched its first Bitcoin ETF. It isn’t hard to imagine why: Anticipation that Bitcoin ETFs might be available in the U.S. soon may have made the Grayscale shares less desirable, and the price discount caused by an initial wave of selling may have led to a downward spiral. 

As of Friday, the fund was trading at around $27.33 per share, while the underlying Bitcoin it holds was worth $37.14. That’s a 26% discount. It means any existing shareholders that want to exit the fund would have to take that 26% loss on top of whatever returns they get from Bitcoin’s price movements.

Grayscale has applied to convert the fund to an ETF. But like those of many competitors, the application is pending with the SEC. The firm has encouraged its shareholders to share their thoughts about the conversion, and more than 170 letters––many of them from frustrating investors––were submitted to the regulatory agency in February alone. 

“As an investor, I don’t feel I’m being protected by the SEC,” wrote one comment. Another one says: “I bought this [fund] before all the hedge funds. We’re buying this to get exposure to [Bitcoin] when it was trading close to NAV. Now they left and I’m holding the bag paying a 2% management fee and trading at a 27% discount to the underlying assets.”

Meanwhile, the Canadian Purpose Bitcoin ETF continues to do what it promised to do. It is accurately tracking the performance of Bitcoin and giving investors easy access to the cryptocurrency. Purpose Investments says the fund’s daily tracking error relative to the price of Bitcoin was only -0.01%. 

Write to Evie Liu at [email protected]