Since 2017, investors have been eagerly awaiting the approval of a Bitcoin ETF because the existence of such a fund has been an important symbol of collective acceptance and recognition in traditional finance.
The purpose of the Bitcoin ETF was officially launched on the Toronto Stock Exchange on February 18, and the fund quickly absorbed over $ 333 million in market value in just two days.
Now that the long-awaited Bitcoin ETF has emerged, investors are curious about how they will compete with the Grayscale Investments Fund GBTC. On February 17, Katie Wood, founder and CEO of Ark Investment Management, said the likelihood of U.S. regulators approving the fund to trade on the bitcoin exchange has increased.
While exchange traded funds (ETFs) and exchange traded securities (ETNs) look very similar, there are fundamental differences in trading, risk and tax.
What is a listed fund?
ETF is a type of stock that contains underlying investments such as commodities, stocks or bonds. It is often similar to an equity fund when it is set up and managed by the issuer.
The ETF has become a $ 7.7 trillion industry and has grown by 65% in just the last two years.
The most prominent example is the SPY, the S&P 500 tracker fund currently operated by State Street. Invesco’s QQQ is another bank transfer system that tracks major US venture technology companies.
More exotic structures are available, such as ProShares UltraShort Bloomberg Crude Oil ($ SCO). By using derivatives, this fund aims to give twice as much daily influence on the oil price.
Which banknotes are traded on the stock exchange?
Listed banknotes (ETNs) are similar to ETFs in that they are traded with traditional brokers. The difference, however, is that ETNs are debt instruments issued by a financial institution. Even if a fund has a repurchase program, the credit risk is entirely dependent on the issuer.
For example, after the collapse of Lehman Brothers in 2008, it took ETN investors more than a decade to recoup their investments.
On the other hand, the purchase of ETFs gives direct ownership of the content, which creates various tax events when you store futures and activate positions. In the meantime, ETN is taxed exclusively on sales.
GBTC does not offer transfers or refunds
Bitcoin Trust Fund (GBTC) Grayscale is the absolute leader in the cryptocurrency market with $ 35 billion in assets under management.
Funds are organized as companies – at least in regulatory form – and are “closed funds.” Thus, the number of available shares is limited, and supply and demand for them largely determine the price.
Mutual funds are regulated by the Office of the Comptroller of the Currency (OCC) in the United States and are therefore not part of the Securities and Exchange Commission (SEC).
GBTC shares cannot be easily created and there is no active recovery program. This tends to create large price fluctuations from net asset value which is the part of the underlying BTC that is represented.
On the other hand, the ETF allows the market maker to create and repurchase shares at will. Therefore, a premium or deduction is usually unlikely given sufficient liquidity.
ETFs are more acceptable to mutual fund managers and pension managers because they have much less risk than a blocked loan like GBTC. Individual investors may not be aware of the possibility of GBTC trading below net worth. Thus, the recent event may increase the pressure on investors to move their positions in the Canadian ETF.
In short, the ETF product has significantly less risk due to greater transparency and share repurchases if the shares are traded at a discount.
However, the impressive market value of GBTC clearly shows that institutional investors are actually involved.