While you wait for an exchange traded crypto fund in the United States, find out what is on sale in Toronto or Frankfurt.
The U.S. securities authorities have yet to approve an exchange-traded fund for the cryptocurrency. But Bitcoin ETFs are operational in Canada and Europe. You can get your hands on stocks, if you know where to look.
I went looking for brokerage firms that allow their US clients to buy funds overseas and encountered many closed doors. Vanguard and Morgan Stanley’s E-Trade division do not allow trading on foreign exchanges. Charles Schwab allows you to buy shares of foreign companies but not foreign funds. Interactive Brokers posts foreign ETFs on its site but prohibits US retail clients from buying them.
Fidelity Investments? Eureka. Out of nine foreign crypto products on my shopping list, Fidelity has seven for sale to Americans (See the table). For reasons it does not explain, it will not allow you to acquire either of the two Europe-traded CoinShares products shown in the table, although you can get a Canadian fund affiliated with CoinShares.
The table includes both ETFs and Exchange Traded Notes, which are similar to ETFs in market behavior. With either of these legal structures, you trust the seller to keep their promises with an inventory of coins in a well-protected wallet. The Notes may also carry the risk of bankruptcy of the intermediary.
Why are most brokers so reluctant to deal with foreign funds? Obviously, they don’t dare to offend the Securities & Exchange Commission, which sees itself as the ultimate arbiter of what’s good for sale on American soil.
The SEC has spent the past seven years crushing proposals for U.S. registered ETFs that would hold bitcoin or bitcoin futures and give investors a way to buy back their shares near the value of the dollar. ‘active. Reason given: malicious people can manipulate the price of parts.
And yet, the agency tolerates another form of crypto fund, without a redemption function. One such prototype is the Grayscale Bitcoin Trust, with $ 21 billion in investor money.
There are now many Grayscale Bitcoin imitators on the loose, some with bitcoins, some with ether, others with mixes that include third-level crypto assets. Lacking a way out and in some cases entry for fresh money, these products (called “trusts” rather than “funds”, so as not to incur the wrath of the SEC) are traded with special and unpredictable discounts or bonuses on their assets. value.
At the close of trading on July 22, Grayscale Bitcoin (GBTC) was valued at a 10% discount from the value of its bitcoins. Some people who own it bought it at a higher price. If they come out now, they’ll have been watered back and forth. They would fare better if the fund had always been a redeemable ETF.
Osprey Bitcoin Trust (OBTC) was at a 36% premium on July 22. Fine, if you already own stocks and want to opt out. But the SEC does little favor for new buyers. They are forced to pay $ 1.36 for a dollar of something.
The operators of the Grayscale and Osprey funds have pledged to convert their products into ETFs as soon as the SEC gives their approval. It probably won’t happen for a while. Tyler Odean, editor of the crypto watch Something interesting newsletter on Substack, says the day is at least a year away.
In the meantime, you could own one of these foreign ETFs. Aim for one with a lot of assets, and therefore a decent trading volume. A small fund is more likely to offer opportunities to enter and exit near the value of the asset.
Some of these foreign ETFs are gaining ground. A few months after it opened this year, during Bitcoin’s springtime surge, two of Canada’s offerings surpassed $ 1 billion in assets.
It is likely that US investors have found ways in. This, despite the fact that, in deference to the SEC, sellers are squinting their web pages with warnings that Americans should keep their distance.
Som Seif is the entrepreneur behind Purpose Investments in Toronto, a fast growing collection of unconventional investment products (the line includes a marijuana fund and a refundable retirement annuity). He too avoids openly encouraging cross-border shopping. But he estimates that U.S. buyers own a quarter of Purpose Bitcoin’s shares.
At Fidelity, there are a few speed bumps. You must sign certain documents to gain access to foreign exchanges, and your first transaction is chaperoned via a phone call. But online commissions are low, from $ 8 to $ 25 per trade, depending on the exchange. Currency conversion typically runs at 0.75% on a $ 100,000 ante; you can avoid this expense by selecting a product listed in US dollars.
What is our SEC waiting for? Apparently, stronger evidence that speculators are not engaged in bear raids or pump and dump programs. But, at least with traditional assets like bitcoin and ether, price volatility should be the least of your worries. Here are some more important risks: the repository of coins supporting your fund is hacked; funds, sometimes domiciled in fragmented places like the island of Jersey or audited by companies with unknown names, are infiltrated by crooks; bitcoin goes out of fashion and drops to $ 12.
Bitwise Asset Management is one of many companies keen to enter the US crypto ETF market when the doors open. According to Teddy Fusaro, its president: “It is frustrating for some investors that the United States does not have a fully registered exchange traded product for cryptocurrency. But the US market is the envy of the world for a reason: the best regulatory oversight, the clearest rules, the most transparent regulator, even if it takes a little longer.
When the day comes, there could be a wave of US investors leaving foreign funds to invest in domestic alternatives. Hopefully, new money leads to a flow of cash (i.e. tighter bid / ask spreads) and more competition in expense ratios. The earliest would be best.