Grayscale Files to Turn Biggest Bitcoin Fund Into an ETF
Comment of the Day

October 19 2021

Commentary by Eoin Treacy

Grayscale Files to Turn Biggest Bitcoin Fund Into an ETF

This article for Bloomberg may be of interest to subscribers. Here is a section:

“We are of the firm belief that because the futures and the spot pricing for Bitcoin are inextricably tied, that we have the willingness to allow or clear the way for a Bitcoin futures ETF in the market, and also clear the way for a spot ETF,”

Sonnenshein said in an interview. GBTC currently holds roughly 3.4% of the world’s supply of Bitcoin, according to Grayscale.  The conversion would likely solve a persistent problem for Grayscale: the trust’s discount to net asset value. The product’s price has traded below its underlying Bitcoin holdings for a prolonged period because shares in the vehicle can’t be destroyed in the same way as they can in an ETF. But it could also be seen as a way to sidestep obsolescence, with the advent of Bitcoin ETFs threatening to draw assets away from a product that investors have tolerated due to the lack of an alternative.

Eoin Treacy's view

Commodity investors are more than familiar with the difficulties presented by investing in futures over the long term. The predictable roll schedule of the US Oil fund, and the trading environment that embedded a contango more often than not, ensured the fund seldom delivered on its promise to track the oil price.

Bitcoin futures are no different than other futures and mostly trading in contango. That ensures losses when the contracts are rolled. This means that futures funds tend to lag when prices are rising and underperform in a big way when prices are falling.

Physically backed ETFs tend to do a better job of tracking the commodity price because they do not have a predictable roll and only sell when units are redeemed or sold. The closed end fund set up the Grayscale funds are currently set up under means discounts to NAV are often present and help to price in the generous fees the managers pay themselves. As the market becomes saturated with products the lure of an ETF structure will certainly be attractive.

Bitcoin continues to pause in the region of the all-time peak following an impressive rebound over the last month. It is reasonable to conclude the speed of the bounce was aided by the prospect of ETFs being launched but as pointed out above futures funds need momentum to generate performance. Meanwhile, the threat of regulation continues to represent a potential headwind over the medium-term that has not simply disappeared.

A sustained move below $55,000 will be required to signal more than very short-term resistance in this area.
Tesla’s share price already behaves like a bitcoin ETF and it is also now testing its all-time peaks

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