Cryptocurrency ETPs Lifted by Bitcoin’s Ascent

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Cryptocurrency ETPs Lifted by Bitcoin’s Ascent

“A rising tide lifts all boats” is the well-known saying that is playing out in the nascent cryptocurrency market. The recent surge in bitcoin prices has been fast and impressive, rising from $15,433 per coin to $46,477 during the past three months.

Other top cryptos by market capitalization, including ethereum and litecoin, have seen a similar bullish run-up in their coin prices.

Exchange-traded products linked to cryptos have seen their share prices zoom higher, too. 

The Grayscale Bitcoin Trust (GBTC) has jumped 49.7% year-to-date compared to a 4.4% gain for the SPDR S&P 500 ETF Trust (SPY) and a 3.5% loss for the SPDR Gold Shares (GLD).

The Bitwise 10 Crypto Index Fund (BITW), which tracks a basket of the ten largest cryptocurrencies by market cap, has gained 21.7% year-to-date. The top holdings in BITW are bitcoin (77.1% weighting) and ethereum (17.7%). The fund’s coin assets are kept in custody at Coinbase, a San Francisco-based crypto exchange operator.

Bitwise also offers the Digital Asset Index Fund for institutional investors that covers approximately 75% of the total digital asset universe by market cap. The San Francisco-based company recently surpassed $500 million under management. 

What other factors are driving coin prices higher? Look no further than the continued momentum in the adoption of cryptocurrencies by the financial establishment. 

On Feb. 8, the Chicago Mercantile Exchange introduced trading in ethereum futures contracts. The much anticipated move was announced in December and ethereum prices have tripled since then. In 2017, the CME listed the first bitcoin futures contract.

In the consumer world, PayPal last October introduced cryptocurrency buying and selling for its customers, along with the ability to pay for goods and services with digital coins. In an SEC filing, Tesla announced a new purchase of $1.5 billion worth of bitcoin. Plus, the company announced it would start accepting bitcoin as payment for its products.

“Crypto can be a very valuable alternative inside investment portfolios,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “It has high potential returns, low correlation to other assets and liquidity. It’s a magic trio.”

Some investors and financial advisors are waiting for the Securities and Exchange Commission to approve a bitcoin ETF that trades without the premiums and discounts the current generation of crypto-linked ETPs experience. And depending on the coin and the ETP, the disconnect between a product’s share price and the value of its holdings can be significant. 

For example, the $274 share price for the Grayscale Litecoin Trust (LTCN) trades near a breathtaking 1,562% premium to the trust’s underlying assets. Sponsors of these products will generally disclose the premiums and discounts on their websites.

Another potential drawback of crypto ETPs are the steep fees. GBTC charges a hefty annual expense ratio of 2%, and other crypto-linked products come with similarly elevated expenses.

Regardless of the drawbacks, the adoption rate of cryptocurrencies by both individual and institutional investors is accelerating. As the marketplace matures, improved crypto ETPs will come to market and fees will compress. Crypto enthusiasts are hoping for a happy outcome. And if the bullish price trend continues, they may get their wish.

Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.” 

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