Structured Products Flourish as Investors Seek Passive Exposure to Digital Assets

The Grayscale Bitcoin Trust (ticker GBTC) and the Bitwise 10 Crypto Index Fund (ticker BITW) are exchange-traded products that allow investors to trade shares of trusts with large holdings of crypto assets. 

With shares priced close enough to the price of Bitcoin, the products lure even the most crypto-weary investors with a chance to safely and quickly gain exposure to the extremely popular digital asset market. 

Even with Monday’s pullback, Bitcoin has gained 320% since the beginning of 2020. Investors want in, and they want peace of mind. The hefty premiums these products come with cover custody and security, alleviating common fears associated with crypto assets. 

As of the close on Monday, GBTC trades at $37.40 and holds 0.00095 Bitcoin per share, according to Grayscale. That’s more than a 17.5% premium to net asset value, but investors don’t seem to be deterred. 

“Going and making an account on an exchange, linking that to your bank account, then paying the costs associated with the spread on the exchanges to buy the assets, then later selling them, and of course figuring out a custody solution, doing tax calculations and getting financial statements, compared to easily owning it through a stock that they can go and buy like any other stock in their brokerage account?” said Ray Sharif-Askary, Director of Investor Relations and Business Development at Grayscale Investments. “That has value.” 

BITW trades at $67.20 and at 272% premium to NAV. Its fund’s holdings are diversified across a variety of digital assets with 75% allocated to Bitcoin (BTC), 13% to Ethereum (ETH) and 12% split between LINK, XTZ, BCH, LTC, XLM and EOS. 

Bitwise dropped XRP, previously the third-largest digital asset globally, from the fund shortly after launching following accusations from U.S. regulators that Ripple Labs Inc. executives were selling more than $1 billion of unregistered digital tokens. 

The products prove that the fear of missing out on digital assets is stronger than ever. 

GBTC, launched in September 2013, currently has $21.1 billion in assets under management, according to Grayscale. Bitwise’s fund launched in December 2020 and saw gains of roughly 72% in its first two days. 

“The reality is that these are stocks that you can buy on basically any exchange anywhere in the world, you can invest any amount of money, you can buy them publicly and you don’t have to adhere to any kind of hold period,” said Sharif-Askary. “So, it is very easy for people to go into their brokerage account and get access to these products in the form of a stock, just like they would with Amazon or Apple stock.” 

The products, which both operate similarly to closed-end mutual funds, are two of several investment vehicles offering an alternative to the traditional exchange-traded fund structure. The U.S. Securities and Exchange Commission has long denied bids for Bitcoin ETFs, claiming digital assets lack security and liquidity, although some crypto-enthusiasts say this will be the year that changes. 

“There is tremendous demand that is now widespread, it’s retail and it’s institutional” said Edward Moya, senior market analyst at Oanda Corp. “The path to an ETF is there now because everything is going in the right direction with demand, and, more importantly, the Wall Street community is now a believer in crypto.” 

VanEck Associates Corp. filed for the VanEck Bitcoin Trust in December 2020, making the firm the latest to attempt a Bitcoin ETF launch, betting that a change in SEC leadership might expedite the adoption of Bitcoin for an institutional crowd that is handcuffed by compliance.