There are many quirks to Bitcoin investing, but one of the biggest ones is that regulators have refused to approve an exchange-traded fund that holds the digital currency. In the absence of an ETF—which investors use as a cheap and easy way to get exposure to various assets —companies have turned to a workaround in the form of trusts to offer Bitcoin on the stock market.
The latest example is Ninepoint Partners, a Canadian fund that went public after raising $180 million from private investors. After receiving regulatory approval earlier this month, the firm listed its shares on the Toronto Stock Exchange on Wednesday.
Ninepoint follows the example of Grayscale, which pioneered the model of creating a trust dedicated to buying Bitcoin, and then selling shares in that trust in return for a commission. Ninepoint is storing the Bitcoin backing the trust with Gemini, the New York-based cryptocurrency firm run by the Winklevoss twins.
Despite Grayscale’s much larger size—the company owns around $30 billion worth of Bitcoin and other cryptocurrencies—Ninepoint believes it can take a piece of the market by offering a lower management fee of 0.7% and eliminating a lock-up period in which Grayscale makes its shares available only to professional investors.
Ninepoint is not the first company to imitate Grayscale, which long-enjoyed a quasi-monopoly on packaging Bitcoin into shares. In 2020, the firms Bitwise and 3IQ likewise offered competing products.
Skeptics have long looked askance at the Bitcoin-as-a-trust model, noting that Grayscale shares have often traded at a large premium to the underlying cryptocurrency. This premium, along with the management, has led critics to point out that investors would be better off buying Bitcoin directly from Coinbase, Square’ Cash App or a growing number of other firms that sell the currency directly.
Despite such objections, Grayscale had a banner year in 2020, in part because its trust model provides an easy means for institutions—some of which have bylaws that restrict them buying crypto directly— to gain exposure to the asset class.
One prominent cryptocurrency executive, who spoke on condition of anonymity, described the trust structure as a loophole, and predicted the SEC will eventually close it or, more likely, finally approve an ETF. The executive added, however, that any such approval could still be years away, noting the agency has rebuffed numerous petitions from various companies to create a Bitcoin ETF.
For Ninepoint Partners and its co-CEOs, John Wilson and James Fox, Bitcoin is the firm’s latest foray into alternative investments that include funds dedicated to precious metals and real estate. The company has also tapped Alex Tapscott, a veteran crypto entrepreneur and author of several popular books on blockchain and fintech, to educate investors on Bitcoin as an asset class.