The push for a bitcoin Exchange-Traded Fund has been on for close to 4 years with no success. However, things might be looking bright for cryptocurrency traders as a closed-end fund; much similar to ETFs might be underway. While speaking on Bloomberg, Cathie Wood, chief executive officer of ARK Investment Management, said a bitcoin ETF will come into play in at least two years, possibly accompanied by a handful of “education.”
The proposed bitcoin fund will allow investors to trade in financial securities tied to bitcoins without necessarily owning bitcoins.ARK Innovation ETF, which operates the first U.S cryptocurrency exchange-traded fund, gains access to cryptocurrency through the Bitcoin Investment Trust. The BIT is an investment vehicle that allows investment in bitcoins, deriving its value from the price of bitcoins. BITs liquidate into GBTCs, after one-year holding period and sold to underlying investment funds.
GBTCs have a higher premium over the bitcoins. However, they are a much better investment as they offer greater benefits compared to buying bitcoins directly. With GBTC, investors have a titled and audible ownership. Shares are eligible to be held in tax-advantaged accounts such as IRA and are publicly quoted. Also, investors enjoy a network of trusted service providers.
What is Close-ended Fund?
Closed-ended Fund (CEF) is an investment structure that invests in portfolio securities, and whose shares trade in the open market. CEFs raise capital through initial public offering (IPO). However, unlike other funds, capital in CEFs do not flow in and out regularly. CEFS do not trade shares on the daily and instead do so on an exchange with the market determining its price. CEFs operate similarly to ETFs but are not ETFs.
Some of the shared traits include an underlying portfolio of investments with a net asset value, leverageable portfolios, and trade during the day on exchanges, expense ratios, and both offer distributions of capital gains and income.
