The Bitcoin Investment Trust, a type of exchange-traded fund (ETF), promoted by Grayscale Investments, a firm specialising in digital currency investments, allows investors to gain exposure to bitcoin without the related hassles. You don’t need to open an account at a bitcoin exchange or deal with the issues of storing your bitcoin safely.
Bitcoin Investment Trust shares track bitcoin prices. The trust owns a little over 170,000 bitcoins. Each share in the trust represents 0.09211978 bitcoin. Based on this ratio, a share in the trust should have been valued at US$596 on 31 October 2017 as the price of bitcoin on that date was US$6468.
But on 31 October, one share in the Bitcoin Investment Trust was trading at US$828. That’s almost a 40% premium on its intrinsic value. Why should you have to pay this premium?
It seems that the demand for financial products that provide the opportunity to benefit from a rise in the price of bitcoin is very high. For those who don’t want to buy bitcoin directly, there are few options available. This has pushed prices up. Additionally, shareholders are also entitled to a certain amount of Bitcoin Cash, a new currency that all bitcoin owners received.
There are other drawbacks too. At 2%, the trust’s annual fee is high. However, the returns that it has provided have been spectacular. In the beginning of January this year, a share in Bitcoin Investment Trust was worth US$136. Ten months later, it trades at US$950.
You can also take an exposure to bitcoin by investing in a mutual fund that holds shares in the Bitcoin Investment Trust. The Kinetics Internet Fund – which had 12.1% of its total investments in the Bitcoin Investment Trust on 30 September 2017 – has provided a return of 23.6% so far this year.
There are several other funds that have bought shares in Bitcoin Investment Trust. The list of these funds includes Ark Innovation ETF, which had invested 5.1% of its total assets in it, and Ark Web x.o ETF with 6% of its holdings in the Bitcoin Investment Trust.
Some other funds with an exposure to bitcoin include the Kinetics Paradigm Fund, the Kinetics Market Opportunities Fund, the Horizon Strategic Value Investment Fund, and the Kinetics Small Cap Opportunities Fund.
Another option is to invest in an exchange-traded note (ETN) that allows you to gain exposure to the cryptocurrency. Saxo Bank has recently introduced two new bitcoin ETNs.