It hasn’t been a good year so far for bitcoin ETF hopefuls. Year-to-date, a total of 10 potential bitcoin products were prevented from listing on U.S. exchanges by the Securities and Exchange Commission.
Though another two cryptocurrency products are still being evaluated by the SEC—a crypto index fund and a bitcoin ETF with a $200,000 handle—expectations that a U.S.-listed digital currency ETF will begin trading this year have dimmed.
But while potential bitcoin ETFs were getting rejected left and right this month, another product that looks an awfully lot like the mythical bitcoin ETF (but isn’t) quietly arrived on the scene.
Dollar-Denominated Bitcoin ETN
The fund’s name is the Bitcoin Tracker One, an exchange-traded note (ETN) that started trading on the Nasdaq Stockholm in 2015. It’s been heralded as the first bitcoin security to trade on a regulated exchange.
Initially offered only in Swedish krona, the ETNs were soon after also available in euros. Then nearly three years later, on Aug. 15 of this year, they became available in U.S. dollars.
Suddenly, U.S. investors could buy and sell a regulated bitcoin exchange-traded product just as they would a stock. The dollar-denominated ETNs are quoted over-the-counter on the pink sheets under the ticker symbol CXBTF.
The ‘F’ at the end of the ticker symbol signifies that it is a foreign share (F-share), with similarities to an American depository receipt.
F-shares are cleared, custodied and settled on the home market and in the home currency, but quoted and executed in U.S. dollars.
As Good As An ETF?
For a U.S. investor with a brokerage account, you are essentially getting easy access to a bitcoin ETN traded in Sweden. For some, it could be just as good as the elusive U.S.-listed bitcoin ETF that has yet to be approved (see: Bitcoin ETFs Not Quite Dead Yet).
After all, they are regulated by Swedish authorities; they trade close to net asset value (NAV) with a functioning creation/redemption mechanism; and they are relatively liquid. XBT Provider, the issuer of the ETNs, currently has $480 million in assets under management in its bitcoin and ethereum ETNs.
Performance Of Bitcoin Tracker One & Bitcoin
The ETNs have closely tracked the bitcoin price since their inception in 2015
Still, there are differences between CXBTF and a hypothetical U.S.-listed bitcoin ETF. For one, the ETNs may not be available to trade for all investors. As of this writing, the ticker was available to trade on Fidelity, but not Schwab. Trading is at the discretion of each brokerage.
Secondly, the security doesn’t have the blessing of the U.S. SEC. That’s not surprising. Bitcoin Tracker One is regulated and exchanged in Sweden; its issuer never intended for it to trade on a U.S. exchange.
The ETNs have the green light from the Financial Industry Regulatory Authority, the financial industry’s self-regulatory body, to be quoted in dollars and to trade on the pink sheets. But even so, the SEC could theoretically step in and put an end to that. That doesn’t seem to be something that’s likely to happen, according to industry sources.
It’s also important to note that an ETN like Bitcoin Tracker One is not an ETF. Though we often lump ETNs under the ETF umbrella, they are technically different.
ETNs are debt notes that promise some pattern of returns; in this case, the price of bitcoin. That’s in contrast to a hypothetical bitcoin ETF, which would hold the underlying asset.
For all intents and purposes, ETFs and ETNs typically perform similarly, but the latter carries counterparty risk. If XBT Provider were to go under, a buyer of the ETNs could lose some or all of their investment.
With those caveats aside, CXBTF is certainly an interesting product, and one worth considering for U.S. investors eager to get their hands on bitcoin through a traditional brokerage account.
It’s superior to the Bitcoin Investment Trust (GBTC), the quasi-closed-end-fund that routinely trades with massive premiums (currently 35% over NAV).
For investors looking to delve even deeper into the digital asset space, issuer XBT Provider also has an ethereum product, Ether Tracker One, that is now being quoted in dollars. CETHF, the F-shares version of the one-year-old ethereum ETNs listed and regulated in Sweden, showed up on the pink sheets on Monday.
If a U.S.-listed bitcoin ETF is a long shot, a U.S.-listed ethereum ETF is an even longer shot. Ethereum doesn’t have the name recognition or first-mover advantage of bitcoin. It’s also more volatile, having dropped 66% this year compared to bitcoin’s 50%.
That said, ethereum is currently considered a strong No. 2 to bitcoin in the digital asset space, which makes CETHF a compelling option for would-be crypto investors.
Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2