Bitcoin was initially conceived as a peer-to-peer electronic checkout system where users could make transactions under a pseudonym.
More than a decade after its creation, this vision has evolved to resemble something closer to digital gold. Today, Bitcoin is seen by many as a hedge against inflation or an insurance policy against fiat money. Rather than simply acting as a payment system, Bitcoin has matured into a global settlement system with a native asset designed to maintain value during inflationary periods, just as gold and real estate have done in the past.
Unlike payment systems, most of the demand for this type of asset comes from institutions that allocate capital to preserve and grow their assets, rather than individuals.
It is entirely credible to think that by entering the “fourth era” Bitcoin, its place as a valuable asset will be consolidated through the participation of financial institutions. The commitment to employ the capital of these players is a long-term conviction of Bitcoin’s value proposition. Therefore, measuring the pace at which institutions enter the space is a valuable trend to follow.
Part of what makes Bitcoin valuable is its ability to be self-guarded.
The popular “not your keys, not your coins” ideology married by hardcore bitcoiners demonstrates their reluctance to relinquish the right to fully control their assets. However, for many institutions this is neither feasible nor practical due to regulations and the reluctance to submit to the resulting risk.
For these and other reasons, there are a variety of investment products built to offer exposure to Bitcoin through vehicles that seem more familiar to the world than traditional investments. While they may conflict with its basic ethics, these products have an important role to play in providing institutions with access to Bitcoin.
One of the oldest Bitcoin products is the Grayscale Bitcoin Trust (GBTC), a fund that holds bitcoin. It is like a listed fund (ETF), but initial shares are only available to accredited investors, while secondary trading is open to any investor. The GBTC allows investors to deposit bitcoins to create shares or buy shares for cash.
Looking at Grayscale’s Q3 ’19 investor report, it appears that at least 80% of capital flows come from Bitcoin deposits in kind. With $2 billion currently under management, it is estimated that approximately $400 million of the fund is coming from new Bitcoin purchases, while new additions appear to be steadily increasing.
CoinShares ETP and others.
Another product structurally more similar to an ETF is CoinShares ETP, which tracks the price of bitcoin and is listed at the Nasdaq in Stockholm and has over $500 million in AUM, highlighting interest in all European markets.3 There are several other funds including the Canadian 3iQ, Swiss 21 Shares Bitcoin ETP, and the Wisdom Tree Bitcoin fund that have not grown as much as their counterparts, but still represent alternative vehicles of interest to investors.
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Independent researcher and consultant, crypto activist.