NEW YORK: Bitcoin’s shocking surge to record highlights after investors raced about exposure to the rally – even if it meant paying absurdly high markup.
As the largest cryptocurrency rocked above US $ 23,000 for the first time this week, the mania pushed the price of the Bitwise 10 Crypto Index Fund (BITW ticker) as much as 650% above its value and is currently trading near 350%, according to data compiled by Bloomberg. Meanwhile, the premium on Grayscale Bitcoin Trust (GBTC ticker) increased to 34% in the middle of the rally.
Such displacements mean that large institutional investors and mother-and-pop traders alike have to pay hugely to buy shares, versus buying out the underlying holdings completely. But as Bitcoin’s 200% rally so far attracts feverish attention and fears of losing out further on earnings, demand for anything with crypto wrappers is booming. For those investors looking for access to Bitcoin but who are reluctant or unsure how to gain direct exposure, the ease of purchasing products like BITW or GBTC through a brokerage platform cuts the additional cost.
“The answer is not as simple as ‘does it make sense to pay for that?’ in a vacuum. It doesn’t make any sense at all to pay that premium, ”said James Seyffart, Bloomberg Intelligence ETF analyst. “But I think some level of premium is justified, and if you want access to Bitcoin, there really aren’t any better options.”
BITW has soared at 165% since its first appearance earlier this month, beating the gains in Bitcoin and Ether by a distance. GBTC has climbed around 40% over that period. That performance creates the gap between the prices of the product and the net asset value of their underlying holdings.
Sometimes those displacements appear in the US $ 5 trillion exchange fund universe – especially in periods of heightened volatility, such as in March – but rarely exceed 3%. When they do so, specialist traders known as authorized participants step in to arbitrate the loophole by creating or redeeming ETF shares. – Bloomberg