Here’s how the Purpose Bitcoin ETF differs from Grayscale’s GBTC Trust

Here’s how the Purpose Bitcoin ETF differs from Grayscale’s GBTC Trust 1
Here’s how the Purpose Bitcoin ETF differs from Grayscale’s GBTC Trust 2

Here’s how the Purpose Bitcoin ETF differs from Grayscale’s GBTC Trust 3

Here’s how the Purpose Bitcoin ETF differs from Grayscale’s GBTC Trust 4

Since 2017, investors have been eagerly awaiting the adoption of Bitcoin ETFs, as the existence of such a fund is an important symbol of widespread adoption and acceptance by the traditional financial sector.

The Bitcoin Target ETF was officially launched on the Toronto Stock Exchange on February 18, and in just two days, the fund recorded a market capitalization of more than $333 million.

Now that the long-awaited Bitcoin ETF is here, investors are wondering how it will compete with the Grayscale Investments GBTC fund. The 17th. In February, Cathie Wood, founder and CEO of Ark Investment Management, said the likelihood of US regulators approving an exchange-traded Bitcoin fund has increased.

Although exchange-traded funds (ETFs) and exchange-traded bonds (ETNs) are very similar, there are fundamental differences in terms of trading, risk and taxation.

Table of Contents

What is an exchange-traded fund?

An ETF is a type of security that contains underlying investments such as commodities, stocks or bonds. It often looks like a mutual fund because it is pooled and managed by the issuer.

ETFs have grown to a $7.7 trillion sector, up 65% in the past two years alone.

The best known example is SPY, a fund that tracks the S&P 500 index and is now managed by State Street. QQQ Investments is another TEF that tracks large-cap U.S. technology companies.

There are also more exotic structures, such as the ProShares UltraShort Bloomberg Crude Oil ($SCO). Through the use of derivatives, this fund aims to achieve short-term leverage on the oil price, which occurs twice a day.

What is a warehouse receipt?

Exchange Traded Notes (ETNs) are similar to ETFs in that they are traded through traditional stockbrokers. The difference, however, is that an ETN is a debt security issued by a financial institution. Even if the fund has a buyback program, the credit risk is entirely dependent on the issuer.

For example, after the Lehman Brothers implosion in 2008, it took more than a decade for ETN investors to recover their investments.

On the other hand, by purchasing an ETF, one becomes a direct owner of its contents, which leads to different tax facts when holding futures contracts and leveraged positions. Meanwhile, TNTs are not taxed until they are sold.

GBTC does not offer exchange or refunds

Grayscale’s Bitcoin Trust Fund (GBTC) is the absolute leader in cryptocurrency, with $35 billion in assets under management.

Investment funds are structured – at least from a regulatory perspective – like corporations and are closed-end funds. The number of shares available is therefore limited, and supply and demand largely determine their price.

Investment funds are supervised by the US Office of the Comptroller of the Currency (OCC) and are therefore not subject to the jurisdiction of the Securities and Exchange Commission (SEC).

GBTC shares cannot be created just like that, nor can an active buyback program be set up. This usually leads to significant price deviations from the intrinsic value, which is the underlying represented share of the BTC.

An ETF, on the other hand, allows a market maker to create and repurchase shares at its discretion. Consequently, a premium or discount is generally unlikely if sufficient liquidity is available.

The ETF instrument is much more acceptable to investment fund managers and pension funds because it involves much less risk than a closed trust such as the GBTC. Retail investors may not have been aware of the possibility that the GBTC could trade below its net asset value. Thus, the recent event may put additional pressure on investors to move their positions in the Canadian ETF.

In summary, the ETF product carries much less risk thanks to its greater transparency and the ability to buy back shares if the security is trading at a discount.

Nevertheless, GBTC’s impressive market capitalization clearly demonstrates that institutional investors are already on board.

The views and opinions expressed herein are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research when you make your decision.

frequently asked questions

What is the best Bitcoin ETF?

Top 5 Crypto ETFs sold now – [List and prices] – Benzinga

What is GBTC’s share of Bitcoin?

In other words, a trust owns about 63,890 Bitcoin, and people can buy shares of that trust, with each share representing slightly less than 0.001 Bitcoin (so if you own 1,000 shares, you own a contract representing slightly less than 1 Bitcoin).

How does the Bitcoin ETF work?

Bitcoin ETFs are exchange-traded funds that track the value of Bitcoin and trade on traditional exchanges rather than cryptocurrency exchanges. They allow investors to invest in Bitcoin without the hassle of cryptocurrency trading, while offering leverage on the currency’s price.

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