Grayscale Bitcoin Trust (GBTC)

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ETFs Could Rock the Bitcoin World; Potential arrival of the low-cost crypto vehicles is already being felt in the market
7:30am ET 4/12/2021 Editor's Picks
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By Telis Demos

What exchange-traded funds did to the traditional investment industry over decades might happen in a fraction of the time for the world of cryptocurrency players.There is a growing sense that a bitcoin ETF might finally arrive in the U.S. in the not-too-distant future. The nominated chairman of the Securities and Exchange Commission, Gary Gensler, has taught courses on cryptocurrency. The bitcoin market has experienced huge growth in recent months and now has the involvement of some big institutions. VanEck, Fidelity and others are again seeking regulatory approval for bitcoin ETFs.Already there are indicators of big potential demand. The first bitcoin ETF in North America, the Toronto-listed Purpose Bitcoin ETF, has amassed roughly $1 billion in assets since its February launch. Meanwhile, the Grayscale Bitcoin Trust last week reiterated its longstanding intention to seek to convert its publicly traded bitcoin fund to an ETF.Many analysts have attributed the fund shares' recent move to trading at a discount to the net asset value of its bitcoin holdingsâ??after trading at a sizable premium for a long timeâ??in part to the advent of an ETF.One advantage of ETFs is that shares can be readily created and redeemed to arbitrage away any discount or premium, which could greatly broaden their appeal. ETFs are also cheaper, which will put pressure on fees across the bitcoin ecosystem."You have to think about fees today as almost payment for the frictions that exist between the legacy financial system and the crypto ecosystem," said Grayscale Investments Chief Executive Michael Sonnenshein. "You'd expect as pipes gain greater connectivityâ?¦fees will come down."Should Grayscale convert, with some $34 billion in assets under management it would be the second-largest commodity U.S. ETF behind SPDR Gold Trust, and would move to lower its present fees.Today many small investors also invest in bitcoin via digital wallets, like at Coinbase Global, whose largest revenue source is retail transactions. For some crypto-savvy investors, ETFs might not be a very good substitute. For now ETFs are aimed at bitcoin, while many wallets offer a long and growing list of cryptocurrencies. Wallets also can enable activities like borrowing against, paying with, and generating income from crypto. But for many investors just seeking to participate in bitcoin's upside at the lowest cost, these might be relatively niche concerns.SHARE YOUR THOUGHTSWhat do you predict is the future for bitcoin ETFs in the U.S.? Join the conversation below.At this point, Coinbase's growth shows no sign of slowing: Ahead of its public listing set for this week it reported adding some 13 million verified users in the first quarter of 2021 alone, to 56 million, more than it added in all of 2020.A lot of growth could come through ETFs, were they approved. In addition to opening the door to average investors, ETFs will also likely make it easier for more financial advisers to provide bitcoin allocations to clients, says Matt Hougan, chief investment officer of Bitwise Asset Management, which manages more than $1 billion in crypto funds and has also sought to launch an ETF."ETFs might bring a whole new zone of capital into the market," he said.Investors buying into any crypto investment company today should be thinking about the potential for a very different landscape in the years to come.Write to Telis Demos at [e-mail] Could Rock the Bitcoin World