Even the most buzzing hopes have been surpassed by the newly released Purpose Bitcoin ETF. But how is it different from the GBTC Trust of Grayscale?
It is believed that since 2017, investors have been eagerly awaiting the approval of the Bitcoin ETF (exchange-traded fund) as the introduction of such a fund will symbolize the massive adoption and acceptance of Bitcoin by the traditional financial sector.
The Purpose Bitcoin ETF debuted on the Toronto Stock Exchange on February 18 and gained $333 million in market capitalization within two days.
Investors are curious as to how the long-awaited Bitcoin ETF will compare with the Grayscale Investments GBTC Fund, now that it has arrived. Previously, on February 17, Cathie Wood, founder and CEO of Ark Investment Management, predicted that the likelihood for U.S. regulators to approve the Bitcoin ETF will increase.
Although ETFs and ETNs have a common name, their trading characteristics, risks and taxes are very different.
The Exchange-Traded Fund (ETF) is a mutual fund that trades like a stock exchange.
The ETF is a type of security that involves investments such as commodities, securities or bonds. Owing to its resemblance to the mutual fund, it is also thought of as a collective investment controlled by its issuer.
Traded exchange-traded funds (ETFs) have risen in size in the last two years, increasing by 65 per cent.
One of the most widely recognised symbols of our business is the SPY, which tracks the S&P 500 index, currently monitored by State Street. EFT tracks U.S.-based high capitalization technology companies, the same as QQQ.
Straddles like ProShares UltraShort Bloomberg Crude Oil ($SCO) are also available. The purpose of this fund is to have, with derivatives, two times the usual short-term leverage on oil prices.
An exchange note is a bond that is exchanged on a regulated market such as the New York Stock Exchange.
Similarly to ETFs, exchange-traded notes (ETNs) use traditional trading firms to facilitate trade. In spite of this, the ETN is an instrument issued by a financial institution that is related to the underlying debt obligation. Irrespective of whether there is a redemption program, much of the credit risk is with the issuer.
ETN investors took nearly a decade to recover their investment in Lehman Brothers after it fell apart in 2008.
Buying an ETF allows you full ownership of the underlying securities in the portfolio, but there are different tax accidents when you buy futures contracts and use leverage to raise positions. In the meantime, ETNs are taxed only when they are sold.
The problem with GBTC is that it does not provide any conversion or redemption.
The industry leader in cryptocurrencies is GBTC (Grayscale Bitcoin Trust Fund), which holds $35 billion in assets.
They are closed-end funds in legal form and are ‘investment trusts’ for financial analysis purposes. As a result, the supply and demand for available shares limits the amount of available shares and thus controls their price.
The OCC manages investment trust funds outside the jurisdiction of the SEC.
No active production or redemption schemes are in place for GBTC shares. As a consequence, the price difference between the sale price and the net asset value is substantial.
Compared to a mutual fund, which does not allow market makers to build and redeem shares, the ETF does so. A premium or discount is rarely offered, particularly if there is sufficient liquidity.
A closed-end trust such as GBTC is slightly more volatile to mutual fund managers and pension funds due to its lack of market exposure. When it comes to institutional investors, they may not have been aware that GBTC is priced below net asset value. This recent event may have prompted investors to liquidate their Canadian stock holdings.
The ETF is at lower risk due to the ability of the ETF to freely exchange securities and to issue dividends in the event that its shares are exchanged at a discount.
While high GBTC market capitalization may lead you to believe otherwise, it appears that the institutions have already jumped on board.