Crypto ETFs

Hi Friends,

As an investor and crypto fan, I am naturally drawn towards crypto ETFs (exchange traded funds). In theory, the concept sounds great, the fund holds the crypto and can buy the ETF on an exchange to hold it through your brokerage account. This alleviates the burden of wallets, keys, security concerns, exchanges, etc from holding the crypto directly.

The biggest problem right now though is that the value of the underlying crypto being held does not correlate to the price of the ETF. In a traditional mutual fund, the NAV (net asset value) of the holdings is the price of the mutual fund, however, when it comes to ETFs, they trade on exchanges like a stock holding would, so trading price could be at a premium or a discount to the actual underlying NAV of crypto holdings.

There are only a few crypto ETFs right now, but more are coming (I saw an article about Fidelity launching one soon). Grayscale has their Digital Large Cap Fund which consists of roughly 75% Bitcoin, 17% Ethereum, 4% XRP, 2% Bitcoin Cash and 1% Litecoin – not a bad mix if you want to get exposure to crypto in your brokerage account.

The problem is that the current price per share of the ETF (ticker is GDLC) is $26.08 per share, while the actual value of the underlying crypto is only $7.50 per share. Over time, you would expect the price to correlate with the NAV, so buying at such a premium carries a lot of risk – better to just buy the crypto and hold it yourself at this point.

Here is Grayscale’s website which shows the actual value of the crypto per share:

https://grayscale.co/digital-large-cap/#market-performance

Good luck with your investing!

Brian