In January, the SEC formally approved exchange-traded funds linked directly to bitcoin. So-called “spot” bitcoin ETFs can hold the digital asset without equivocation or complications.

While there have been some funds that have provided indirect exposure over the last few years, the new funds give investors a way to tie their money very closely to the day-to-day movement of bitcoin prices on “spot” markets.

But not all of the new funds will draw in enough shareholder money. That can be fatal for a fund. After all, a fund that charges 0.30% in annual expenses and has only $50 million in total assets would only generate $150,000 a year in management fees. That’s not a lot for a marketing budget, regulatory compliance work or other necessary expenses.

Grayscale Bitcoin Trust

If the SEC just recently gave approval to funds to operate as spot bitcoin ETFs, how is it that Grayscale Bitcoin Trust has been up and running since 2013? In its early days, GBTC was not an ETF.

As a trust, GBTC traded something like a closed-end fund. That meant it lacked the highly liquid, smooth redemption mechanism that ETFs enjoy. And as a result, shares often traded at a big premium or discount to the actual value of the underlying bitcoin. Investors are understandably reluctant to pay, say, $1 for 90 cents worth of assets. With SEC approval of its conversion to an ETF, GBTC got a level playing field with the other 10 ETFs that won the SEC’s okay to operate.