It’s been nearly eight years in the making. Grayscale, the largest crypto-focused institutional asset manager in the United States, rallied the SEC, and the entire industry, into the first round of Bitcoin ETF approvals. Since 2015, Grayscale funds were structured as an Investment Trust and the eligible shares were quoted and traded on the US’s OTC market (OTCQX). While the value of the fund was backed by the amount of Bitcoin (BTC) stored in their wallets, the shares of the Trust were priced separately. Based on the recent SEC approval, the fund is transitioning from a Trust into a Spot ETF (exchange-traded fund), where the value of the shares will be fixed to the live price of BTC.
Although Grayscale was the first, the SEC has approved a total of 11 BTC ETFs simultaneously from major institutional asset managers. Trading will begin as early as Thursday, January 11th. The general consensus from Wall Street is that billions will start to inflow into these products.
The big players are entering the game.
While Grayscale is considered as a big-player in the digital asset world, when compared against its counterparts by measure of Assets Under Management (AUM), they’re quite small. Blackrock, Fidelity and Investco, three of the major names in the business, have all received approval for their ETF listing.
Institutional asset managers by AUM with active BTC ETFs (in USD).
- Blackrock: $9 trillion
- Fidelity: $3.8 trillion
- Investco: $1.5 trillion
- Franklin Templeton: $1.5 trillion
- WisdomTree: $94 billion
- VanEck: $75 billion
- Grayscale: $50 billion
- NYDIG/Stone Ridge: $20 billion
- ARK invest: $6 billion
- Valkyrie: $1 billion
- Bitwise: $700 million
- Hashdex: $567 million
What’s the difference between an Investment Trust and an ETF?
Investment Trusts are investment vehicles (public limited companies) whose purpose is to invest in other companies, or in this case, Bitcoin. These investment trusts have been trading on the OTCQX. The issue is that the OTC market generally lacks deep liquidity, and more importantly, it lacks Authorized Participants (commonly referred to as broker-dealers). Broker-dealers manage the share issuing and redemption so the investment vehicle is traded at par to the value of the underlying asset (referred to as Net Asset Value or NAV).
The transitioning from a Trust to an ETF is significant for many reasons, but a big one is market efficiency. The ETFs will be listed on the NYSE Arca, Cboe BZX and Nasdaq, not the OTCQX, where Authorized Participants will be able to manage the share issuing and redemption on a daily basis so the ETF will always be priced at par to Bitcoin. Institutional investors prefer more efficient markets with deeper liquidity, and ETFs are considered the main gateway for more institutional money to inflow into Bitcoin.
The Grayscale Bitcoin Investment Trust (GBTC) has traded at both premiums and discounts on the OTCQX as a result of no Broker-Dealers managing NAV. As of January 5th, 2024, the shares were publicly trading at a ~5% discount to the value of its underlying assets (BTC).
Price from January 5, 2024
- Precio de mercado GBTC $ 37.16
- Acciones en circulación 692,370,100
- Market Cap $ 25,728,472,916.00
- Precio actual de BTC $43,897
- Total de BTC 619,359.673
- Market Cap $27,188,031,563.93
- Holdings por acción $39.27
- Diferencia -5.37%
Potential Inflows and its effect on price.
New inflows into the ETF could vary, but when we look back at recent comparables, we can see a clear trend. The first gold ETF was launched in 2004 and gave investors the ability to gain exposure to gold without owning it physically. The SPDR Gold Shares ETF (GLD) raised almost $2 billion USD in one month (adjusted for inflation), almost $60 billion as of 2023. The ProShares Bitcoin Strategy ETF (BITO), an ETF based on Bitcoin futures, raised around $1.5 billion in the first month. Other commodity based ETFs performed similarly, raising hundreds of millions in the opening days, reaching new highs years later.
Some analysts suggest BTC could drop upon ETF approval, as investors will “recycle” their capital by exiting other BTC positions to enter into an SEC regulated product. Others suggest the recent increase in BTC price are investors betting on the ETF approval, purchasing GBTC shares at a 5% discount only to sell upon NAV appreciating upwards. Most agree, however, in the long run, billions of dollars will flow into these funds.
Either way, Bitcoin is becoming institutionalized.
Read the full article written by Alex Cavallero, COO of Kii Global, on the Forbes website.
