About the Author

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Martin Gaspar
Research Analyst

Martin is a research analyst at CrossTower. Martin has several years of experience in conducting fundamental research and cryptocurrency analysis. Prior to joining CrossTower, Martin was a fixed income research analyst at Wells Fargo Securities, where he helped support traders, salespeople, and buy-side clients through his actionable investment recommendations. He has a passion for crypto and has followed the space extensively since 2012. Martin holds a BA from Colorado College, where he graduated with Distinction in Economics.

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As the crypto industry continues to mature, investors have sought out the familiarity of ETPs for exposure to the space. Several trends dominated the narrative in Q1 2021, including: popular Grayscale trusts trading at a sustained discount to NAV and several U.S. Bitcoin ETF applications from blue-chip financial firms. Moreover, the recent launch of the first-ever Bitcoin ETFs in Canada, as well as multiple filings for an Ether ETF in Canada, has led to optimism that more crypto ETFs are on the horizon.


Several crypto ETFs approved in Q1. In addition to multiple Bitcoin ETFs launching in Canada, Brazil and Bermuda approved crypto ETFs. As of March 29, 2021, the Purpose Bitcoin ETF is the largest of the three, with AUM of approximately 15,231 BTC ($880 million), according to data from Glassnode. As of the same date, the Evolve Bitcoin ETF held 1,241 BTC ($72 million), while the CI Galaxy Bitcoin ETF held roughly 3,306 BTC ($191 million), per our calculations. The growth in these ETFs demonstrate investor interest in BTC remains strong, in our view.

Canadian Ether ETFs may be imminent. Two firms, CI and Evolve, both of which launched Bitcoin ETFs during the quarter, have filed for Ether ETFs in Canada. Given the timeline from receipt of preliminary prospectus to approval for the Bitcoin ETFs, we anticipate Ether ETFs could come as soon as Q2 2021.

Bitcoin ETF applications continue to pile up. There have been five applications in 2021 to date for a U.S. Bitcoin ETF. Notably, these applications are from blue-chip financial firms, including Fidelity. In addition to the recent approval of crypto ETFs in Canada, Brazil, and Bermuda, the recent wave of applications and caliber of the firms behind them are driving investor optimism that the SEC could approve a Bitcoin ETF in 2021.

GBTC and ETHE discounts pressured by lower trading volume. Both the Grayscale Bitcoin Trust (GBTC) and the Grayscale Ethereum Trust (ETHE) have closed at a discount for much of March 2021. While a greater supply of unrestricted shares, the recent launch of Bitcoin ETFs, and filings for Ether ETFs seem to be key forces driving the discounts, we also point out lower trading volumes are exacerbating the situation. We note that the discount may in fact make sense for these products, given that they are closed-end funds.

Recent Crypto ETP News

Exhibit 1. Recent Crypto ETP News

Three Bitcoin ETFs Approved in Canada in Q1 2021

As of March 30, 2021, Canadian securities regulators approved three Bitcoin ETFs:

  1. Purpose Bitcoin ETF (BTCC)
  2. Evolve Bitcoin ETF (EBIT)
  3. CI Galaxy Bitcoin ETF (BTCX)

In our view, these products were met up with pent up demand for a Bitcoin ETF and have seen steady inflows since launch. As of March 29, 2021, the Purpose Bitcoin ETF is the largest of the three, with AUM of approximately 15,231 BTC ($880 million), according to Glassnode. As of the same date, the Evolve Bitcoin ETF held 1,241 BTC ($72 million), while the CI Galaxy Bitcoin ETF held roughly 3,306 BTC ($191 million), per our calculations.

Exhibit 2. Canadian Bitcoin ETF AUM

Purpose Bitcoin ETF Inflows Show Steady Investor Demand

Since launch, the Purpose Bitcoin ETF continued to see inflows, bringing its total BTC holdings to over 15,000 as of March 29, 2021. In our view, with GBTC closed to private placement over the last few weeks, this ETF is a key barometer of investor demand.

So far, the data indicates investor appetite for BTC is unwavering, despite BTC hovering near record prices. We calculate that for the month of March 2021 through March 29, the ETF saw average daily inflows of approximately $13 million, according to data from Glassnode.

Exhibit 3. Purpose Bitcoin ETF Inflows in March 2021

Ether ETFs On Deck

Recent filings by CI Global Asset Management (February 25, 2021) and Evolve Funds (March 2, 2021) for Ether ETFs in Canada has helped drive sentiment that Ether ETFs are around the corner. Given that both of these firms have had Bitcoin ETFs approved and launched in Canada, we anticipate an Ether ETF could be approved as soon as Q2 2021.

U.S. Bitcoin ETF Applications Pile Up

During March 2021, more blue-chip firms filed for Bitcoin ETFs, adding to the stack of applications awaiting the SEC. Most recently, Fidelity filed for a Bitcoin ETF on March 24, 2021. There have been five applications for U.S. Bitcoin ETFs in 2021 to date. The wave of applications and the caliber of the firms behind them has raised investor optimism that the SEC will approve a Bitcoin ETF in 2021. In addition, with SEC chairman nominee Gary Gensler set to be confirmed by the Senate in the coming weeks, sentiment is rising that the SEC may be more inclined to approve a Bitcoin ETF, given Gensler’s background in crypto and blockchain.

Exhibit 4. Bitcoin ETF Applications in 2021

We expect more Bitcoin ETF applications to trickle in over the coming months, as financial firms attempt to capture the opportunity as crypto goes mainstream. Moreover, with leading financial companies applying for Bitcoin ETFs and with Bitcoin ETFs now approved in multiple countries (Canada, Brazil, Bermuda), we believe a Bitcoin ETF approval from the SEC is more likely. On March 18, 2021, CoinDesk reported the SEC published VanEck’s Bitcoin ETF application, starting a 45-day timeline for a decision on whether to approve or deny the application, or extend the review.

Grayscale’s GBTC, ETHE Discount Continues to Draw Investor Attention

As GBTC continues to trade below NAV, its daily average volume has declined, exacerbating the discount.

For much of March 2021, the largest crypto ETP, the Grayscale Bitcoin Trust (GBTC) traded at a discount to NAV. GBTC closed at an average discount of 5.9% for the month through March 29, according to data from Glassnode. This compares to an average premium of 6.7% and 14.5% in February and January 2021, respectively.

The Grayscale Ethereum Trust (ETHE) also traded at a sustained discount during March, as shown in Exhibit 5. For the month of March 2021, through March 29, ETHE closed at an average discount of 5.1%, versus a premium of 9.3% and 15.3% in February and January 2021, respectively.

In our view, the discounts indicate a lack of appetite in the secondary market for Bitcoin trusts, as demonstrated by lower daily average volumes for GBTC. For the month of March 2021 through March 29, we calculate GBTC average daily volume was approximately $515 million, which compares to $679 million in February (-24.2%) and $778 million in January (-33.9%) 2021, according to data from Yahoo Finance.

ETHE exhibited an even greater decline in trading volume in March 2021. For the month of March through March 29, ETHE’s daily average trading volume stood at approximately $72 million, which compares to $138 million in February (-47.5%) and $131 million in January (-45.1%) 2021, according to data from Yahoo Finance.

Exhibit 5. GBTC and ETHE Premium to NAV

This lower trading volume has exacerbated the GBTC discount in our view, which went as far as 16% intraday on March 25, 2021. While GBTC’s private placement remains closed, inflows to other Bitcoin ETPs, such as the Purpose Bitcoin ETF, continue, signaling that the decline in demand for products such as GBTC may be due to the availability of competing products, which are cheaper than these trusts. We believe ETHE’s recent discount is due to similar reasons.

GBTC and ETHE Discounts May Be Logical

As both GBTC and ETHE are closed-end funds, their recent discount may make sense considering many closed-end funds trade at a discount. Moreover, since these Grayscale trusts do not currently feature a redemption mechanism, investors have to turn to the OTC market for liquidity. In addition, shares of GBTC and ETHE are restricted for 6 months once issued in the private placement, during which they are unable to be sold on the OTC market, causing a liquidity constraint for investors.

Thus, in our view, the recent discounts may accurately reflect:

  1. Lack of a redemption mechanism.
  2. A supply glut of restricted shares, which could turn into further sell pressure once unrestricted.
  3. GBTC’s relatively high 2% management fee (2.5% for ETHE).

Given the accessibility, liquidity, lower fees, and redemption mechanisms of competing crypto ETPs, investors may be pricing in the potential case of investing in GBTC and paying a 2% annual fee in perpetuity, in the case redemption mechanism is not added in the future.

For years, GBTC has been the market-leading crypto ETP, given it is one of the only instruments for certain investors to gain BTC exposure in their tax-advantaged accounts. It was also a key means for institutional investors to gain exposure to BTC without dealing with the complexity of self-custody. Now, we believe the discount is likely here to stay, given the proliferation of Bitcoin ETFs, and expect the same for ETHE once Ether ETFs are approved.


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