When bitcoin burst on the scene in 2009, very few people could wrap their minds around the idea of money that exists purely in cyberspace. However, people who had grown wary of the central banks’ control over and manipulation of currencies latched on to it quickly, as did investors looking for ways to diversify their portfolios. As its popularity has grown, bitcoin, which has no central authority, has been used increasingly for international money transfers as well as for everyday commerce. More than 100,000 merchants now accept bitcoin for transactions.
Because it has a finite and known cap on its supply, the value of bitcoin increases as demand increases, making it an attractive vehicle for investors—but also, a very volatile one, as the last few years have shown. Bitcoin's closing prices have soared as high as $18,402 on Dec. 18, 2017, and as low as $3,234 on Dec. 13, 2018. As of Jan. 10, 2020, it had just cracked $8,000.
Bitcoin’s volatility can be attributed to a number of factors, including the fact that it remains not yet well understood as a store of value or a method of transfer. Investors can become very skittish about bitcoin when it makes the headlines over security vulnerabilities or its use in drug trafficking. In addition, the cryptocurrency’s regulatory status is still unclear in most jurisdictions. In the U.S., the Securities and Exchange Commission (SEC) has rejected several applications for bitcoin exchange-traded funds (ETFs). Blockchain ETFs, which hold stocks of companies that have invested in blockchain technology, are more common; currently, there are eight such ETFs trading in regulated markets.
So, investing directly in bitcoin can be a bit complex, requiring the ability to store and protect them. However, investors who are intrigued by bitcoin, either as speculative play or as a way to diversify a portfolio, do have a couple of ways to play.
All figures are current as of Jan. 10, 2019.
- As of January 2020, there is still only one publicly traded exchange-traded fund investing in bitcoin, the Grayscale Bitcoin Trust (GBTC).
- Investors can get indirect exposure to bitcoin through the ARK Next Generation Internet ETF (ARKW) which holds the Bitcoin Trust in its portfolio.
The Grayscale Bitcoin Trust
Established as the Bitcoin Trust, an open-ended private trust by Alternative Currency Asset Management in 2013, this fund is now sponsored by Grayscale Investments LLC. It began trading publicly in 2015 under the symbol GBTC, and is now called the Grayscale Bitcoin Trust. On January 21, 2020, Grayscale said its Bitcoin Trust became and an SEC reporting company today, following the approval of its Form 10 application by the SEC.
The fund’s objective is to track the underlying value of bitcoin, much like the SPDR Shares ETF (GLD) tracks the underlying value of gold. It has $3.5 billion in assets under management (AUM), and an average daily trading volume of 2.65 million shares a day. The fund’s assets are stored with Xapo, Inc. and they are protected with extreme cryptographic security. The fund has a very high expense ratio of 2%, partly to cover the extra cost of safekeeping.
The Trust itself is open only to accredited investors who have earned income over $200,000 ($300,000 jointly) or have a net worth over $1 million. The minimum investment is $50,000.
As an investment vehicle that trades over-the-counter, however, GBTC is available for investors to buy and sell in the same way as virtually any U.S. security. GBTC can be traded through a brokerage firm, and it's also available within tax-advantaged accounts like IRAs or 401(k)s. investors are eligible to purchase as little as one share of the GBTC public quotation.
ARK Investment Management
New York-based ARK Investment Management manages four ETFs with more than $240 million in AUM. One of its funds, ARK Next Generation Internet ETF (ARKW) has invested in the bitcoin revolution by purchasing stakes in the Grayscale Bitcoin Trust.
ARKW is an actively-managed ETF with $358 million in AUM. It invests primarily in cloud-based companies with leading next-generation technologies, such as Tesla (TSLA), currently nearly 11.02% of the portfolio; Square, Inc.(SQ), nearly 8.53%, and Twitter (TWTR), just 0.79%. It owns 2,682,597 shares of Grayscale, with a current market value of $25,135,933.89—a 1.73% stake of the portfolio. The expense ratio for the fund is 0.75%.
ARK has another fund, the ARK Innovation ETF (ARKK), which seeks out investments in what it views as disruptive technologies It has invested in Grayscale in the past. Its portfolio doesn't contain any shares currently, however.