There’s still not a Bitcoin exchange traded fund in the U.S., but the VanEck Vectors Bitcoin ETN (VBTC), which trades on Deutsche Börse Xetra, is proving so successful that the issuer is lowering the annual fee on the product.
“The VanEck Vectors Bitcoin ETN is a fully-collateralized exchange traded note that invests in bitcoin. The note seeks to replicate the value and yield performance of the MVIS CryptoCompare Bitcoin VWAP Close Index (MVBTCV Index),” according to the issuer.
VBTC is just a few months old and is already generating enough of a following that VanEck is cutting its fee in half.
“Asset manager VanEck is lowering the total expense ratio (TER) for its VanEck Vectors Bitcoin ETN from 2.00 % to 1.00 % per year, effective today. Launched in November 2020, the Exchange Traded Note (ETN) offers investors the opportunity to benefit from the performance of bitcoin in an exchange-traded and regulated manner without having to buy it themselves,” according to the issuer.
Bitcoin ETNs and ETFs
ETNs are a debt obligation, so credit risk is a concern investors need to be mindful of. ETNs have maturity dates. When you hold an ETN until the maturity date, you receive a one-time payment based on the performance of the underlying asset, index, or strategy. If you wish to sell sooner, you can sell on the open market.
“Thanks to the regulated structure, investors can use an ETN product to invest in Bitcoin just like trading stocks or ETFs. This means that you do not need a wallet, as is usually the case with cryptocurrencies, in which Bitcoins are stored on a blockchain outside the rest of the portfolio. The VanEck Vectors Bitcoin ETN is fully invested in Bitcoin. Only Bitcoins are purchased with the money invested in the ETN, so each ETN share represents a real share of Bitcoin,” according to VanEck.
With Bitcoin and other cryptocurrencies captivating investors, talk is again increasing about the prospects for a Bitcoin exchange traded fund. Multiple Bitcoin ETFs recently debuted in Canada, and related exchange-traded products have existed in Europe for some time.
While the ETF market has been anxiously awaiting a Bitcoin ETF, the SEC has turned down all related proposals. Investors and the digital currency universe are hoping a change in leadership at the SEC could bolster Bitcoin ETFs’ chances of success.
Positive regulatory developments may also serve to hasten the ETF approval process, or at least make an approval more likely. One of the issues for regulators in approving a Bitcoin ETF is that there is unexplained chaos in the cryptocurrency, including illegal activity and a lack of regulation, which can generate wild swings for investors and speculators alike. This activity has decreased over time, however.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.