Bitcoin Trusts: An Easy Way to Enter a Complicated Market

Bitcoin continues to move higher following a year of monumental growth. Registering new record highs almost weekly since the beginning of 2021, the cryptocurrency now appears to be ushering in a brand-new era in its decade-long story: mainstream adoption.

While the bitcoin crowd has long touted the digital currency’s value, there is a growing shift occurring among financial institutes, top-tier companies and governments, which have begun supporting bitcoin.

A by-product of this widespread adoption is increased access to the asset. Since the start of the year, at least three companies have filed applications to launch the first bitcoin exchange-traded funds (ETFs).

Of those three, two have been successful so far: the Purpose Bitcoin ETF (TSX:BTCC.B) and the Evolve Bitcoin ETF (TSX:EBIT). Both received the final nod in mid-February and began trading on the Toronto Stock Exchange within days of each other.

The first quarter also saw the launch of Ninepoint Partners’ Bitcoin Trust (TSX:BITC.UN). Based in Canada, the trust began trading in both Canadian and US currencies on January 27. With an initial public offering (IPO) of C$230 million (US$180 million), Ninepoint’s crypto offering was fully invested within a day of listing, underpinning retail investors’ desire to enter an often complicated market.

There are some key differences between bitcoin ETFs and bitcoin trusts, with the most notable being how they track an asset. For trusts like Ninepoint, investors gain access to the underlying commodity by purchasing a share or unit of the trust. The trust then tracks the commodity.

ETFs are often referred to as baskets, as they hold a variety of securities, including stocks, bonds and mutual funds, across a sector or asset class. ETFs track an index and give investors an opportunity to broadly invest in a sector or space.

The Investing News Network spoke with John Wilson, Ninepoint’s co-CEO and managing partner, and Alex Tapscott, managing director of Ninepoint’s digital asset group, about the trust and its well-timed launch.

Bitcoin trusts: Growing demand for access

Wilson, who is also a senior portfolio manager at Ninepoint, explained that part of the reasoning behind the launch of Ninepoint’s trust was the continued evolution of bitcoin, as well as growing interest in the asset across a variety of investment classes.

“Over the last 12 months, you’ve seen just a whole series of announcements, from both investment institutions in terms of investing in bitcoin, and major financial intermediaries becoming part of the bitcoin value proposition,” he said, citing Visa (NYSE:V), MasterCard (NYSE:MA) and Bank of New York Mellon’s (NYSE:BK) recent forays into the bitcoin value chain.

“So all of that from our perspective meant that it was time to give people a way to access bitcoin in a way that was affordable, safe and easy. And that’s what we tried to do with Bitcoin Trust.”

There are a handful of offerings in the bitcoin trust space, but Ninepoint believes its low fee structure and the years of experience its team brings to the market sets it apart from the rest.

“Ultimately, (investors) are using this vehicle to get safe, easy access to the underlying asset, in this case, bitcoin,” said Wilson.

“The fees on those (other trust) offerings are anywhere from 1.75 to 2 percent, and we felt that impairs their ability to properly track the underlying assets. So we priced (Ninepoint’s) Bitcoin Trust at 0.7 percent, which is obviously significantly below the next fee structure, over 100 beeps below.”

The lower fee structure will also allow the company to better track the underlying asset and grow the vehicle over time, according to Wilson.

“And I think our IPO showed that, we were over three times the size of the other bitcoin IPOs,” he said.

Bitcoin trusts: The new digital gold?

Ninepoint’s level of experience is another factor that the firm is banking on to draw attention to its trust.

“We spun out of Sprott Asset Management (TSX:SII,NYSE:SII), which is well known in the gold and precious metals space,” said the managing partner of Ninepoint. “Our team was the team that actually invented Sprott’s physical trusts and brought them to market back in 2010 — we grew the size of those vehicles, over US$8 billion.”

The knowledge the team gained launching the Sprott precious metals trusts correlates well with what the company describes as “an attractive alternative to gold.”

“Our investment thesis for bitcoin is multifaceted,” said Tapscott, who explained that Ninepoint believes bitcoin is a form a digital gold. “There are certain properties of bitcoin that make it really attractive as a store of value; it has a limited supply, it has a slow supply growth and it is independent from government or corporate control. So whereas traditional government-issued currencies are at the discretion of the central bank, gold is not, and the same is true for bitcoin as well.”

For all its similarities, there are some key differences between bitcoin and gold that Tapscott believes give the former an edge.

“We’re seeing investors acknowledge these benefits and also see additional benefits, which is that bitcoin is easier to store, it’s far less expensive to move. It’s more useful as a way to make payments and it’s impossible to forge,” he said. “And so for the reasons that it’s similar to gold and the reasons that it’s superior to gold, it is increasingly attracting capital from investors as a store of value investment.”

Bitcoin trusts: Adoption to be a key driver

Since its January 27 launch, shares of Ninepoint’s Bitcoin Trust have climbed as high as C$21.09, a 71 percent increase from its initial C$12.30 price.

Bitcoin’s 2021 projections remain rosy, with some forecasting that the crypto coin could reach the US$85,000 to US$100,000 range — especially since Tesla (NASDAQ:TSLA) Founder Elon Musk acquired US$1.5 billion worth of bitcoin in January. The well-known CEO also announced that his electric vehicle company will accept the cyber cash as payment.

Adoption by major credit card companies and financial institutions are some of the recent catalysts that have raised investor awareness for bitcoin; however, for the heads of the trust it again comes down to the store of value that bitcoin possesses.

“Our investment thesis for the short and medium term is really around this idea of bitcoin as a store of value, as a systemically important financial asset, as a replacement for gold,” said Tapscott.

Bitcoin’s ability to store value was put to the test in March 2020, when the COVID-19 black swan descended on markets, commodities and most asset classes. Like gold, which slumped and rebounded, bitcoin also quickly bounced back and went on to outperform the yellow metal — it added 323 percent year-over-year and rose 507 percent from mid-March to December 31.

“Where bitcoin and gold may be similar in certain respects, the performance is quite different,” added Tapscott. “In a period of time when bitcoin has done very well, gold has remained relatively flat.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.