Bitcoin related funds see dramatic trading growth

Darren Sinden

Average weekly investment into the Grayscale Bitcoin Trust hit $217.10 million in Q4 2020, versus a figure of just $90.0 million per week for the full year

South Korea money

Trading activity in a little known Bitcoin ETP has jumped sharply as interest in the Cryptocurrency continues to grow.

The BTC ETC Bitcoin Exchange Traded Crypto (Ticker BTCE) which trades on Deutsche Borse and the SIX Swiss Exchange, was launched in August 2020 but has largely stayed under the radar since inception.

However, with Bitcoin experiencing sharp price moves over recent weeks, interest in the exchange-traded product has picked up.

Average daily turnover in BTCE reached a value of €57.0 million across the first 11 days of January.

That meant the physical Bitcoin ETP was the second most actively traded ETF on the Deutsche Borse platform and was only eclipsed by the iShares Global Clean Energy UCITS ETF, which traded just €1.0 million of additional daily turnover in that period.

By comparison, BTCE traded just €15.50 million worth of average daily value during December. Though of course, it’s not an entirely linear relationship between the two figures as the price of Bitcoin has risen between December and January.

BTCE provides exposure to physical bitcoins rather than a derivative and one unit of the ETP currently equates to exposure of slightly less than one-thousandth of a Bitcoin.

The ETPs assets i.e. its Bitcoins are held are at BitGo Trust Company, a Palo Alto California based digital custodian. Investors in the fund can elect to redeem their holdings into Bitcoin.

One of the key features of BTCE is that trades in the ETP are centrally cleared which removes counterparty risks and that potentially gives the product an advantage over other Bitcoin trading methods. Particularly where institutional investors are concerned. Many funds and wealth managers cannot trade futures, options or otc derivatives, such as CFDs on behalf of their clients.

Those that could trade CFDs would likely have concerns about the size of their counterparties balance sheet. Many margin trading firms are lightly capitalised and therefore are potentially unsuited to institutional trading.

In a centrally cleared market, the clearinghouse becomes the buyer to every seller and the seller to every buyer, greatly reducing if not eliminating counterparty risk entirely.

Interestingly the website of HanETF the distributor of the fund, suggests that BTCE is SIPP eligible. Meaning that in theory, at least, UK pension investors could hold BTCE in their retirement plans.

Though, of course, the FCA has recently clamped down on the marketing of Bitcoin derivatives and ETPs to UK retail customers. However, those traders and investors with professional client status are unaffected by the FCA ruling.

The ETPs creator ETC Group has this week listed similar funds priced in US dollars, sterling and Swiss francs on Deutsche Bourse and the SIX Swiss exchange, and is intending to launch more crypto-related ETPs in the coming weeks. The Zurich based exchange now hosts 34 crypto linked products from half a dozen issuers.

BTCE is not the only Bitcoin-related fund to have experienced an uptick interest of late. The Grayscale Bitcoin Trust a US otc-listed investment trust (with the ticker BTC) has also been active. New investment in the fund had been suspended since December 24th but opened again this week. Grayscales Q4 2020 update sheds light on just how much money has been coming in and where from.

Average weekly investment into the Bitcoin Trust hit $217.10 million in Q4, compared to the annual weekly average of just $90.0 million. 93% of the money invested across all Grayscale crypto-related products, which totalled $3.30 billion in Q4, versus $5.70 for 2020, came from institutional investors. A group that Grayscale said was dominated by asset managers.

That helps to confirm the idea that investing in Bitcoin and cryptocurrencies has achieved, or is very close to achieving mainstream acceptance.

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