Bitcoin-related funds are hurting as crypto prices rise

by James · October 18, 2022

By Frances Yue

Listed bitcoin-related funds have seen both share prices and assets under management plummet, in line with the chaos of digital assets.

“Investors have significantly reduced exposure to risk assets and remain risk-averse at the moment as inflation remains high and central banks continue to tighten,” Dessislava Aubert, research analyst at Kaiko, wrote to MarketWatch.

Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin fund, has lost about 67% of its value so far this year, underperforming bitcoin, which fell about 59% over the same stretch, according to FactSet data.

Meanwhile, the fund’s shares were trading at a record discount of nearly 37% to net asset value, or its underlying bitcoin holdings. GBTC is a closed-end fund, where accredited investors can buy shares based on net asset value, and sell them in the secondary market after a six-month lock-up period.

GBTC was launched in 2013. Its shares previously traded at a premium to net asset value, but since February 2021 have traded at a discount. Declining crypto values since about November have been a factor in the decline in the fund’s assets under management, which declined. up nearly 60% to about $12.2 billion on Monday from $30 billion at the start of the year.

The decline can also be attributed in part to increasing competition from other funds, as more bitcoin futures-backed exchange-traded funds, or ETFs, were launched in the US and other countries. Also, the US Securities and Exchange Commission rejected Grayscale’s application to convert GBTC into a spot bitcoin ETF, which would have allowed investors to redeem shares at net asset value.

Meanwhile, ProShares Bitcoin Strategy (BITO), the first bitcoin futures-based ETF in the U.S., is down 58% so far this year, according to FactSet data. Capital under management fell to $623 million on Monday from $1.2 billion at the start of the year.

BITO “has demonstrated its ability to track spot bitcoin, despite an extremely volatile period for stocks, bonds and digital assets during the first year since its inception,” a representative at ProShares wrote to MarketWatch via email.

The Valkyrie Bitcoin Strategy ETF (BTF) lost 58% so far this year, and the VanEck Bitcoin Strategy ETF (XBTF) fell nearly 60% over the same period.

“The fund is performing as expected, as it only invests in first-month futures contracts, which minimizes relative volatility,” Leah Wald, co-founder and CEO of Valkyrie Investments, wrote to MarketWatch. “Bitcoin is a cyclical asset, the same. like everyone else, and we are confident that we are well positioned to benefit from the upside of a recovery in digital assets and the broader economy,” Wald wrote.

Spokesmen for Grayscale and VanEck did not immediately respond to requests for comment.

– Frances Yue

(END) Dow Jones Newswires

10-18-22 1020ET