The best way to invest in Bitcoin?

Chris Meyer

Pinnacle Investment Management Limited

Bitcoin has divided the investment nation as much as Trump has divided a nation. So many people are talking about, writing about, and now investing in Bitcoin. Even Tesla announced this week that it now owns $1.5bn of Bitcoin as Elon Musk joins the fan club. This wire is not about whether to own Bitcoin or not. Others who know much more about 'crypto gold' can wade in on that debate. Instead, this wire is about the best (and newest) way to invest in Bitcoin if that's your thing. 

Even if you are bullish Bitcoin, the complexity around investing in Bitcoin has always done my head in. No longer as there's now a better way. It's a Bitcoin ETF in Canada (and yes I'm an ETF enthusiast) and will revolutionize the way people invest in Bitcoin. It is the first of its kind. This ETF is unique in that it's backed by physical Bitcoin, not futures so you get the performance of the actual Bitcoin price. It's also not a closed end fund so investors don't have to pay the crazy premiums to NAV on closed-end Bitcoin funds. It's an on-exchange (= easy) way to buy exposure to Bitcoin that just tracks the Bitcoin price with no other 'hair' on it to worry about - now that sounds like the best way to invest in Bitcoin. At long last. 

Sure you can buy physical Bitcoin, but unless you actually want to use it to actually buy a Tesla (apparently in Musk's plans), I don't see the point. All that Bitcoin wallet stuff on Bitcoin 'exchanges' that have names like Wasabi, many of which have disappeared overnight (Mt Gox and Coincheck) or alternatively hiding the private key in your safe or under the proverbial mattress seems very 'last century' for such a modern innovation as a cryptocurrency. 

Then there's the stock exchange traded versions of Bitcoin funds. Most of the large Bitcoin exchange traded funds that own physical Bitcoin are closed end funds. Regulators prefer this as they feel it solves for any problems with the underlying liquidity of Bitcoin (there can't be a 'run' on a closed-end fund requiring emergency selling of Bitcoin). Grayscale, with NYSE ticker GBTC, is the 'Bitcoin closed-end fund monster' with $30bn of FUM. With a $48 share price, it's 'affordable' (again not a comment about the value of Bitcoin) but the problem with buying it today is that each share has only an equivalent of $44 of Bitcoin (i.e. you're paying a 10% premium to the share's Bitcoin price derived NTA). What's more is that the annual fee is 2%. Nice business to be in but not a great deal for investors. 

Alternatively, there are a fair few Bitcoin ETFs that track the Bitcoin futures price. There is now a Bitcoin future listed on the CME which is the world's largest futures exchange, so that's good. Makes the futures market and therefore price in Bitcoin more legitimate. The problem with Bitcoin futures is that they are more expensive than the Bitcoin price (a concept called contango) which means that owning a Bitcoin ETF that invests in Bitcoin futures has a performance drag from essentially overpaying for Bitcoin (via futures) relative to the physical Bitcoin price. 

Enter the best (new) way to gain Bitcoin exposure. Congrats to Purpose Investments, a Canadian ETF shop run by ETF pioneer Som Sief, for getting approval today for their Purpose Bitcoin ETF (ticker BTCC on the TSX). This ETF is the first Bitcoin ETF globally that owns physical Bitcoin and thus tracks the physical Bitcoin price. It's an ETF so it's an open ended fund and thus should trade at NAV, not a premium to NAV, as any divergence from NAV would get arbitraged away. The fee is 1%, much more like it (look out Grayscale!). It could be listed as early as next week so keep an eye out for it. Congrats also to Canada for once again leading the way forward in ETFs. They developed the world's first ETF, the first fixed income ETF and pioneered active ETFs. Here's to hoping the Australian ETF market becomes just as vibrant in the years ahead.

 

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Chris Meyer
Director
Pinnacle Investment Management Limited

Chris is part of the Pinnacle executive management team and responsible for driving the listed products business. Pinnacle’s mission is to establish, grow and sustain a diverse and complementary stable of world-class, specialist investment managers

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