Bitcoin-linked funds are hurting as crypto prices tank

By Frances Yue

Exchange-traded bitcoin-related funds have seen both their share prices and assets under management plummet, in line with the digital asset chaos.

“Investors have significantly reduced their exposure to risky assets and remain risk averse for the time being as inflation remains high and central banks continue to tighten,” Dessislava Aubert, research analyst at Kaiko, wrote to MarketWatch.

Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin fund, has lost around 67% of its value so far this year, underperforming bitcoin, which fell around 59% in the same stretch, according to FactSet data.

Meanwhile, the fund’s shares were trading at a record discount of nearly 37% to net asset value, or to its underlying bitcoin holdings. GBTC is a closed-end fund where accredited investors can buy shares based on net asset value and sell them on the secondary market after a six-month lock-up period.

GBTC was launched in 2013. Previously, its shares were trading at a premium above net asset value, but since February 2021 they are trading at a discount. by almost 60% to around $12.2 billion as of Monday from $30 billion at the beginning of the year.

The decline could also be attributed in part to increased competition from other funds, as several bitcoin futures-backed exchange-traded funds, or ETFs, launched in the US and other countries. Additionally, the US Securities and Exchange Commission rejected Grayscale’s request to convert GBTC into a spot bitcoin ETF, which would have allowed investors to redeem shares at net asset value.

Meanwhile, ProShares Bitcoin Strategy (BITO), the first bitcoin futures-based ETF in the US, is down 58% year-to-date, according to data from FactSet. Its assets under management fell to $623 million on Monday from $1.2 billion at the beginning of the year.

BITO “has demonstrated its ability to closely track bitcoin, despite an extremely volatile period for stocks, bonds, and digital assets during its first year since inception,” a ProShares representative wrote to MarketWatch via email.

Valkyrie Bitcoin Strategy ETF (BTF) is down 58% year-to-date, and VanEck Bitcoin Strategy ETF (XBTF) is down nearly 60% over the same period.

“The fund is performing as expected as it only invests in the previous month’s futures contracts, which minimizes tracking error,” Leah Wald, co-founder and CEO of Valkyrie Investments, wrote to MarketWatch. “Bitcoin is a cyclical asset, the same as any other, and we strongly believe that we are well positioned to benefit from the recovery in digital assets and the broader economy,” Wald wrote.

Spokespeople for Grayscale and VanEck did not immediately respond to requests for comment.

-Frances Yue


(END) Dow Jones Newswires

10-18-22 1020ET

Copyright (c) 2022 Dow Jones & Company, Inc.