NEW YORK: Bitcoin’s awe-inspiring surge to record highs has investors racing for exposure to the rally – even if it means paying an absurdly high markup.
As the largest cryptocurrency rocketed above US$23,000 for the first time this week, the mania pushed the price of the Bitwise 10 Crypto Index Fund (ticker BITW) as much as 650% above the value of its holdings and is currently trading near 350%, according to data compiled by Bloomberg. Meanwhile, the premium on the Grayscale Bitcoin Trust (ticker GBTC) swelled to 34% amid the rally.
Such dislocations mean that large institutional investors and mom-and-pop traders alike have to pay up massively to purchase shares, versus buying the underlying holdings outright. But as Bitcoin’s 200% year-to-date rally attracts feverish attention and stokes fears of further missing out on the gains, demand for anything with a crypto wrapper is booming. For those investors looking for access to Bitcoin but who are reluctant or unsure how to get direct exposure, the ease of buying products like BITW or GBTC through a brokerage platform trumps the extra cost.
“The answer isn’t as simple as ‘does it make sense to pay for that?’ in a vacuum. It makes absolutely no sense to pay that premium,” said James Seyffart, a Bloomberg Intelligence ETF analyst. “But I think some level of premium is justified, and if you want access to Bitcoin, there really aren’t better options.”
BITW has soared 165% since its debut earlier this month, far outpacing the gains in Bitcoin and Ether. GBTC has climbed roughly 40% over that time period. That outperformance creates the gap between the products’ prices and the net asset value of their underlying holdings.
Those dislocations occasionally appear in the US$5 trillion exchange-traded fund universe – particularly in periods of heightened volatility, as in March – but rarely surpass 3% or so. When they do, specialised traders known as authorised participants step in to arbitrage the gap away by creating or redeeming shares of the ETF. — Bloomberg