A Bitcoin ETF Is Still in the Works. Here Are Your Options in the Meantime.

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The call for a Bitcoin exchange-traded fund has become a more urgent chorus this year, as the digital currency continues to surge and becomes increasingly mainstreamamong institutional investors.

An ETF would allow investors to buy and sell the cryptocurrency more easily and cheaply, smoothly integrate it into their portfolios, and eliminate the hassles of securing and storing it. Optimism is high, since the incoming chair of the Securities and Exchange Commission is Gary Gensler, who has deep expertise in cryptocurrencies, including having taught blockchain and digital currencies at MIT.

But until then, the market has become increasingly crowded with funds aimed at giving investors access to Bitcoin through a side door. Many are expensive, some miss the mark, and a few are worth a closer look. Here’s what to know:

Direct ownership. There are funds that allow investors to own the actual asset, much like

SPDR Gold Shares

(ticker: GLD) and

iShares Gold Trust

(IAU). The largest and most popular crypto option has been the $37 billion

Grayscale Bitcoin Trust

(GBTC), a closed-end fund holding Bitcoin in “cold storage,” or offline. The fund charges 2% in exchange for freeing investors from the hassle of creating digital wallets, keys, and storage of the cryptocurrency. The $162 million Osprey Bitcoin Trust (OBTC), launched in February, has a management fee of 0.49%, while additional custody and index fees are expected to add 0.3% or less.

As a closed-end fund, Grayscale has only a fixed number of shares (unlike an ETF, which can always create new shares). This means fund shares can trade at a premium or discount to the price of Bitcoin itself.

Since its launch, the Grayscale fund has traded at a substantial premium, as investors were willing to pay more for custodial and other advantages over owning Bitcoin directly. That has reversed over the past few weeks, however. Anticipation for lower-cost Bitcoin ETFs has made Grayscale shares less desirable. At its lowest, the fund was trading 14% cheaper than its underlying Bitcoin assets, but the discount narrowed this week to 9% after Grayscale announced its intention to convert into an ETF.

Because of its lower costs, the Osprey fund is somewhat more attractive, and as a result, is trading above its underlying Bitcoin stake—11% higher as of Thursday, which could undermine Osprey’s advantage in lower fees. The fund says it also intends to convert to an ETF.

If these ETF conversions do happen, any premium or discount would quickly disappear. That means buying the discounted Grayscale shares now could offer a lower entry point. Still, there is no guarantee that will happen anytime soon, and the interim volatility could be frustrating for investors who want to accurately track Bitcoin’s price.

Jan van Eck of VanEck and Som Seif of Purpose Investements highlight why investors need crypto ETFs.

Multi-crypto funds. Bitcoin is by far the best known and most popular cryptocurrency, but it’s hardly the only one. Others, like Etherium, are less volatile and offer other technological uses. The $1 billion Bitwise 10 Crypto Index fund (BITW) tracks 10 digital coins, and the $527 million

Grayscale Digital Large Cap

(GDLC) invests in the five most prominent ones. Both are trading at significant premiums, however, and charge 2.5%.

Indirect (or accidental) ownership. Some diversified mutual funds and ETFs own the digital currency: The $7.2 billion

ARK Next Generation Internet

ETF (ARKW), for example, has a 5.4% weight in the Grayscale Bitcoin Trust.

Morgan Stanley

also recently filed with the Securities and Exchange Commission to add Bitcoin to 12 of its mutual funds.

The blockchain side door: The $1.3 billion

Amplify Transformational Data Sharing

ETF (BLOK) invests in a variety of companies involved in the blockchain business. That includes Bitcoin miners; transaction and trading platforms; custodians; firms developing private blockchains; and those benefiting from the growth of blockchain, such as chip makers and warehouses for mining machines.

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Michael Venuto, co-manager of the Amplify ETF, says the fund’s relationship to a potential Bitcoin ETF is analogous to an ETF that owns gold miners instead of the metal itself. “We might be highly correlated with Bitcoin today, but we’re not a proxy,” he says. But unlike gold, where mining stocks are typically more volatile than the metal itself, the Amplify fund’s movement has been much more moderate than Bitcoin’s price.

Companies that own Bitcoin. Many companies have been buying Bitcoin for their own treasuries, to transact with customers or even to pay employees.


(MSTR), for instance, is an otherwise mundane business-intelligence software firm whose Bitcoin holdings now make up 80% of its market valuation. High-profile companies such as


(TSLA) and


(SQ) own significant stakes in Bitcoin.

A yet-to-be-launched ETF, Valkyrie Innovative Balance Sheet, which filed in March, plans to own these companies. While companies’ financial strength and competitive edge would also be considered, what matters most is Bitcoin exposure on the balance sheet, says Jeff Kilburg, CEO of KKM Financial and co-manager of the fund. The ETF will be actively managed and likely very concentrated, with just 30 to 40 names and no sector constraints, says Kilburg. It’s possible the top five holdings could make up half of the portfolio, he says.

“Note: Data as of Apr. 8; three-year returns are annualized; *not including additional custody and index fees expected to be 30 basis points or less. N/A=not applicable

Source: Morningstar, company websites

The Holy Grail of Bitcoin investing remains the Bitcoin ETF. Once approved, Bitcoin’s price will likely see another surge, and most funds will rise along with it. Investors need to decide whether to get on board now—despite the drawbacks of current products—or wait for a Bitcoin ETF and miss potential gains in the meantime.

Write to Evie Liu at evie.liu@barrons.com